NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022
(tabular dollar amounts in thousands, except per share and per unit data)
1. Description of Business and Significant Accounting Policies
Description of Business
Highwoods Properties, Inc. (the “Company”) is a fully integrated real estate investment trust (“REIT”) that provides leasing, management, development, construction and other customer-related services for its properties and for third parties. The Company conducts its activities through Highwoods Realty Limited Partnership (the “Operating Partnership”). As of December 31, 2022, we owned or had an interest in 28.8 million rentable square feet of in-service properties, 1.6 million rentable square feet of office properties under development and development land with approximately 5.1 million rentable square feet of potential office build out.
The Company is the sole general partner of the Operating Partnership. As of December 31, 2022, the Company owned all of the Preferred Units and 104.8 million, or 97.8%, of the Common Units in the Operating Partnership. Limited partners owned the remaining 2.4 million Common Units. In the event the Company issues shares of Common Stock, the net proceeds of the issuance are contributed to the Operating Partnership in exchange for additional Common Units. Generally, the Operating Partnership is obligated to redeem each Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company, at its option, may elect to acquire any such Common Units presented for redemption for cash or one share of Common Stock. The Common Units owned by the Company are not redeemable. During 2022, the Company redeemed 30,909 Common Units for a like number of shares of Common Stock and 115,887 Common Units for cash. These redemptions, in conjunction with the proceeds from issuances of Common Stock (see Note 10), increased the percentage of Common Units owned by the Company from 97.7% as of December 31, 2021 to 97.8% as of December 31, 2022.
Basis of Presentation
Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
The Company’s Consolidated Financial Statements include the Operating Partnership, wholly owned subsidiaries and those entities in which the Company has the controlling interest. The Operating Partnership’s Consolidated Financial Statements include wholly owned subsidiaries and those entities in which the Operating Partnership has the controlling interest. We consolidate joint venture investments, such as interests in partnerships and limited liability companies, when we control the major operating and financial policies of the investment through majority ownership, in our capacity as a general partner or managing member or through some other contractual right. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary.
During 2022, we acquired an office building using a special purpose entity owned by a qualified intermediary to facilitate one or more potential Section 1031 reverse exchanges under the Internal Revenue Code. To realize the tax deferrals available under the Section 1031 exchanges, we must complete the Section 1031 exchanges and take title to the to-be-exchanged buildings within 180 days of the acquisition date. We have determined that this entity is a variable interest entity of which we are the primary beneficiary; therefore, we consolidate this entity. As of December 31, 2022, we also have involvement with six additional entities we determined to be variable interest entities, one of which we are the primary beneficiary and is consolidated and five of which we are not the primary beneficiary and are not consolidated. We also owned three properties through a joint venture investment as of December 31, 2022 that were consolidated. (See Note 4).
All intercompany transactions and accounts have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates.
Insurance
We are primarily self-insured for health care claims for participating employees. We have stop-loss coverage to limit our exposure to significant claims on a per claim and annual aggregate basis. We determine our liabilities for claims, including incurred but not reported losses, based on all relevant information, including actuarial estimates of claim liabilities. As of December 31, 2022, a reserve of $0.5 million was recorded to cover estimated reported and unreported claims.
Real Estate and Related Assets
Real estate and related assets are recorded at cost and stated at cost less accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of assets are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of 40 years for buildings and depreciable land infrastructure costs, 15 years for building improvements and five to seven years for furniture, fixtures and equipment. Tenant improvements are amortized using the straight-line method over the initial fixed terms of the respective leases, which generally are from three to 10 years. Depreciation expense for real estate assets was $240.3 million, $218.6 million and $204.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Expenditures directly related to the development and construction of real estate assets are included in net real estate assets and are stated at depreciated cost. Development expenditures include pre-construction costs essential to the development of properties, development and construction costs, interest costs on qualifying assets, real estate taxes, development personnel salaries and related costs and other costs incurred during the period of development. Interest and other carrying costs are capitalized until the building is ready for its intended use, but not later than a year from cessation of major construction activity. We consider a construction project as substantially completed and ready for its intended use upon the completion of tenant improvements. We cease capitalization on the portion that is substantially completed and occupied or held available for occupancy and capitalize only those costs associated with the portion under construction.
We record liabilities for the performance of asset retirement activities when the obligation to perform such activities is probable even when uncertainty exists about the timing and/or method of settlement.
Upon the acquisition of real estate assets accounted for as asset acquisitions, we assess the fair value of acquired tangible assets such as land, buildings and tenant improvements, intangible assets and liabilities such as above and below market leases, acquired in-place leases and other identifiable intangible assets and assumed liabilities. We allocate fair value on a relative basis based on estimated cash flow projections that utilize discount and/or capitalization rates as well as available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
The above and below market rate portions of leases acquired in connection with property acquisitions are recorded in deferred leasing costs and in accounts payable, accrued expenses and other liabilities, respectively, at fair value and amortized into rental revenue over the remaining term of the respective leases as described below. Fair value is calculated as the present value of the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) our estimate of fair market lease rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any renewal option that the customer would be economically compelled to exercise for below-market leases.
In-place leases acquired are recorded at fair value in deferred leasing costs and amortized to depreciation and amortization expense over the remaining term of the respective lease. The value of in-place leases is based on our evaluation of the specific characteristics of each customer’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions, the customer’s credit quality and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.
Assumed debt, if any, is recorded at fair value based on the present value of the expected future payments.
Real estate and other assets are classified as long-lived assets held for use or as long-lived assets held for sale. Real estate is classified as held for sale when the sale of the asset is probable, has been duly approved by the Company, a legally enforceable contract has been executed and the buyer’s due diligence period, if any, has expired.
Impairments of Real Estate Assets and Investments in Unconsolidated Affiliates
With respect to assets classified as held for use, we perform an impairment analysis if our evaluation of events or changes in circumstances indicate that the carrying value may not be recoverable, such as a significant decline in occupancy, identification of materially adverse legal or environmental factors, change in our designation of an asset from core to non-core, which may impact the anticipated holding period, or a decline in market value to an amount less than cost. This analysis is generally performed at the property level, except when an asset is part of an interdependent group such as an office park, and consists of determining whether the asset’s carrying amount will be recovered from its undiscounted estimated future operating and residual cash flows. These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates, costs to operate each property and expected ownership periods. For properties under development, the cash flows are based on expected service potential of the asset or asset group when development is substantially complete.
If the carrying amount of a held for use asset exceeds the sum of its undiscounted future operating and residual cash flows, an impairment loss is recorded for the difference between estimated fair value of the asset and the carrying amount. We generally estimate the fair value of assets held for use by using discounted cash flow analyses. In some instances, appraisal information may be available and is used in addition to a discounted cash flow analysis. As the factors used in generating these cash flows are difficult to predict and are subject to future events that may alter our assumptions, the discounted and/or undiscounted future operating and residual cash flows estimated by us in our impairment analyses or those established by appraisal may not be achieved and we may be required to recognize future impairment losses on properties held for use.
We record assets held for sale at the lower of the carrying amount or estimated fair value. Fair value of assets held for sale is equal to the estimated or contracted sales price with a potential buyer less costs to sell. The impairment loss is the amount by which the carrying amount exceeds the estimated fair value.
We also analyze our investments in unconsolidated affiliates for impairment. This analysis consists of determining whether an expected loss in market value of an investment is other than temporary by evaluating the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the investment, and our intent and ability to retain our investment for a period of time sufficient to allow for any anticipated recovery in market value. As the factors used in this analysis are difficult to predict and are subject to future events that may alter our assumptions, we may be required to recognize future impairment losses on our investments in unconsolidated affiliates.
Sales of Real Estate
For sales of real estate where we have collected the consideration to which we are entitled in exchange for transferring the real estate, the related assets and liabilities are removed from the balance sheet and the resultant gain or loss is recorded in the period the transaction closes. Any post-sale involvement is accounted for as separate performance obligations and when the separate performance obligations are satisfied, the sales price allocated to each is recognized.
Leases
We generally lease our office properties to lessees in exchange for fixed monthly payments that cover rent, property taxes, insurance and certain cost recoveries, primarily common area maintenance (“CAM”). Office properties owned by us that are under lease are primarily located in Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond and Tampa and are leased to a wide variety of lessees across many industries. Our leases are operating leases and mostly range from three to 10 years. Payments from customers for CAM are considered nonlease components that are separated from lease components and are generally accounted for in accordance with the revenue recognition standard. However, we qualified for and elected the practical expedient related to combining the components because the lease component is classified as an operating lease and the timing and pattern of transfer of CAM income, which is not the predominant component, is the same as the lease component. As such, consideration for CAM is accounted for as part of the overall consideration in the lease. Payments from customers for property taxes and insurance are considered noncomponents of the lease and therefore no consideration is allocated to them
because they do not transfer a good or service to the customer. Fixed contractual payments from our leases are recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of rental revenue recognized for the period. Straight-line rental revenue is commenced when the customer assumes control of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.
Some of our leases are subject to annual changes in the Consumer Price Index (“CPI”). Although increases in the CPI are not estimated as part of our measurement of straight-line rental revenue, to the extent that actual CPI is greater or less than the CPI at lease commencement, the amount of rent recognized in a given year is affected accordingly.
Some of our leases have termination options and/or extension options. Termination options allow the customer to terminate the lease prior to the end of the lease term under certain circumstances. Termination options generally become effective half way or further into the original lease term and require advance notification from the customer and payment of a termination fee that reimburses us for a portion of the remaining rent under the original lease term and the undepreciated lease inception costs such as commissions, tenant improvements and lease incentives. Termination fee income is recognized on a straight-line basis from the date of the executed termination agreement through lease expiration when the amount of the fee is determinable and collectability of the fee is reasonably assured. Our extension options generally require a re-negotiation with the customer at market rates.
Initial direct costs, primarily commissions, related to the leasing of our office properties are included in deferred leasing costs and are stated at amortized cost. Such expenditures are part of the investment necessary to execute leases and, therefore, are classified as investment activities in the statement of cash flows. All leasing commissions paid to third parties and our in-house personnel for new leases or lease renewals are capitalized. Capitalized leasing costs are amortized on a straight-line basis over the initial fixed terms of the respective leases. All other costs to negotiate or arrange a lease are expensed as incurred.
Lease incentive costs, which are payments made to or on behalf of a customer as an incentive to sign a lease, are capitalized in deferred leasing costs and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.
Lease related receivables, which include accounts receivable and accrued straight-line rents receivable, are reduced for credit losses. Such amounts are recognized as a reduction to rental and other revenues. We regularly evaluate the collectability of our lease related receivables. Our evaluation of collectability primarily consists of reviewing the credit quality of our customer, historical trends of the customer and changes in customer payment terms. We do not maintain a general reserve to estimate amounts that may not be collectible. If our assumptions regarding the collectability of lease related receivables prove incorrect, we could experience credit losses in excess of what was recognized in rental and other revenues.
Discontinued Operations
Properties that are sold or classified as held for sale are classified as discontinued operations provided that the disposal represents a strategic shift that has (or will have) a major effect on our operations and financial results. Interest expense is included in discontinued operations if a related loan securing the sold property is to be paid off or assumed by the buyer in connection with the sale.
Investments in Unconsolidated Affiliates
We account for our joint venture investments using the equity method of accounting when our interests represent a general partnership interest but substantive participating rights or substantive kick out rights have been granted to the limited partners or when our interests do not represent a general partnership interest and we do not control the major operating and financial policies of the investment. These investments are initially recorded at cost as investments in unconsolidated affiliates and are subsequently adjusted for our share of earnings and cash contributions and distributions. To the extent our cost basis at formation of the joint venture is different than the basis reflected at the joint venture level, the basis difference is amortized over the life of the related assets and included in our share of equity in earnings of unconsolidated affiliates.
Cash Equivalents
We consider highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
Restricted cash represents cash deposits that are legally restricted or held by third parties on our behalf, such as construction-related escrows, property disposition proceeds set aside and designated or intended to fund future tax-deferred exchanges of qualifying real estate investments and escrows and reserves for debt service, real estate taxes and property insurance established pursuant to certain mortgage financing arrangements.
Redeemable Common Units and Preferred Units
Limited partners holding Common Units other than the Company (“Redeemable Common Units”) have the right to put any and all of the Common Units to the Operating Partnership and the Company has the right to put any and all of the Preferred Units to the Operating Partnership in exchange for their liquidation preference plus accrued and unpaid distributions in the event of a corresponding redemption by the Company of the underlying Preferred Stock. Consequently, these Redeemable Common Units and Preferred Units are classified outside of permanent partners’ capital in the Operating Partnership’s accompanying balance sheets. The recorded value of the Redeemable Common Units is based on fair value at the balance sheet date as measured by the closing price of Common Stock on that date multiplied by the total number of Redeemable Common Units outstanding. The recorded value of the Preferred Units is based on their redemption value.
Income Taxes
The Company has elected and expects to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). A corporate REIT is a legal entity that holds real estate assets and, through the payment of dividends to stockholders, is generally permitted to reduce or avoid the payment of federal and state income taxes at the corporate level. To maintain qualification as a REIT, the Company is required to pay dividends to its stockholders equal to at least 90.0% of its annual REIT taxable income, excluding net capital gains. The partnership agreement requires the Operating Partnership to pay economically equivalent distributions on outstanding Common Units at the same time that the Company pays dividends on its outstanding Common Stock.
Other than income taxes related to its taxable REIT subsidiary, the Operating Partnership does not reflect any federal income taxes in its financial statements, since as a partnership the taxable effects of its operations are attributed to its partners. The Operating Partnership does record state income tax for states that tax partnership income directly.
We conduct certain business activities through a taxable REIT subsidiary, as permitted under the Code. The taxable REIT subsidiary is subject to federal, state and local income taxes on its taxable income. We record provisions for income taxes based on its income recognized for financial statement purposes, including the effects of differences between such income and the amount recognized for tax purposes.
Concentration of Credit Risk
As of December 31, 2022, our consolidated properties were leased to approximately 1,500 customers. The geographic locations that comprise greater than 10.0% of our rental and other revenues are Atlanta, Nashville, Raleigh and Tampa. Our customers engage in a wide variety of businesses. No single customer generated more than 4% of our consolidated revenues during 2022.
We maintain our cash and cash equivalents and our restricted cash at financial or other intermediary institutions. The combined account balances at each institution may exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Additionally, from time to time in connection with tax-deferred 1031 transactions, our restricted cash balances may be commingled with other funds being held by any such intermediary institution, which would subject our balance to the credit risk of the institution.
Derivative Financial Instruments
We borrow funds at a combination of fixed and variable rates. Borrowings under our revolving credit facility and bank term loans bear interest at variable rates. Our long-term debt, which consists of secured and unsecured long-term financings, typically bears interest at fixed rates. Our interest rate risk management objectives are to limit generally the impact of interest rate changes on earnings and cash flows and lower our overall borrowing costs. To achieve these objectives, from time to time, we enter into interest rate hedge contracts such as collars, swaps, caps and treasury lock agreements in order to mitigate our interest rate risk with respect to existing and prospective debt instruments. We generally do not hold or issue these derivative
contracts for trading or speculative purposes. The interest rate on all of our variable rate debt is generally adjusted at one or three month intervals, subject to settlements under these interest rate hedge contracts.
Interest rate swaps involve the receipt of variable rate amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income/(loss) and are subsequently reclassified into interest expense as interest payments are made on our debt.
We account for terminated derivative instruments by recognizing the related accumulated other comprehensive income/(loss) balance in current earnings, unless the hedged forecasted transaction continues as originally planned, in which case we continue to amortize the accumulated other comprehensive income/(loss) into interest expense over the originally designated hedge period.
Earnings Per Share and Per Unit
Basic earnings per share of the Company is computed by dividing net income available for common stockholders by the weighted Common Shares outstanding - basic. Diluted earnings per share is computed by dividing net income available for common stockholders (inclusive of noncontrolling interests in the Operating Partnership) by the weighted Common Shares outstanding - basic plus the dilutive effect of options, warrants and convertible securities outstanding, including Common Units, using the treasury stock method. Weighted Common Shares outstanding - basic includes all unvested restricted stock where dividends received on such restricted stock are non-forfeitable.
Basic earnings per unit of the Operating Partnership is computed by dividing net income available for common unitholders by the weighted Common Units outstanding - basic. Diluted earnings per unit is computed by dividing net income available for common unitholders by the weighted Common Units outstanding - basic plus the dilutive effect of options and warrants, using the treasury stock method. Weighted Common Units outstanding - basic includes all of the Company’s unvested restricted stock where distributions received on such restricted stock are non-forfeitable.
Recently Issued Accounting Standards
The Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) that provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). Entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance in this ASU is optional and may be elected now through December 31, 2024 as reference rate reform activities occur. We will continue to evaluate the impact of this ASU; however, we currently expect to avail ourselves of such optional expedients and exceptions should our modified contracts meet the required criteria.
2. Leases
Information as Lessor
We recognized rental and other revenues related to operating lease payments of $816.3 million, $754.9 million and $726.0 million, of which variable lease payments were $69.8 million, $57.3 million and $56.0 million, during the years ended December 31, 2022, 2021 and 2020, respectively. The following table sets forth the undiscounted cash flows for future minimum base rents to be received from customers for leases in effect as of December 31, 2022 for our consolidated properties:
| | | | | | | | |
| 2023 | | $ | 706,882 | |
| 2024 | | 681,005 | |
| 2025 | | 596,224 | |
| 2026 | | 534,928 | |
| 2027 | | 474,241 | |
| Thereafter | | 1,864,949 | |
| | $ | 4,858,229 | |
Information as Lessee
We have office assets encompassing 2.8 million rentable square feet subject to operating ground leases in Atlanta, Nashville, Orlando, Raleigh and Tampa with a weighted average remaining term of 49 years. Rental payments on these leases are adjusted periodically based on either the CPI or on a pre-determined schedule. The monthly payments on a pre-determined schedule are recognized on a straight-line basis over the terms of the respective leases. Changes in the CPI are not estimated as part of our measurement of straight-line rental expense. Upon initial adoption of ASC 842, we recognized a lease liability of $35.3 million (in accounts payable, accrued expenses and other liabilities) and a related right of use asset of $29.7 million (in prepaid expenses and other assets) on our Consolidated Balance Sheets equal to the present value of the minimum lease payments required under each ground lease. The difference between the recorded lease liability and right of use asset represents the accrued straight-line rent liability previously recognized under ASC 840. We used a discount rate of approximately 4.5%, which was derived from our assessment of the credit quality of the Company and adjusted to reflect secured borrowing, estimated yield curves and long-term spread adjustments over appropriate tenors. Some of our ground leases contain extension options; however, these did not impact our calculation of the right of use asset and liability as they extend beyond the useful life of the properties subject to the operating ground leases. We recognized $2.6 million of ground lease expense during each of the years ended December 31, 2022, 2021, and 2020, and we paid $2.4 million, $2.3 million and $2.2 million in cash during 2022, 2021 and 2020, respectively.
The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments on operating ground leases as of December 31, 2022 and a reconciliation of those cash flows to the operating lease liability as of December 31, 2022:
| | | | | | | | |
| 2023 | | $ | 2,213 | |
| 2024 | | 2,258 | |
| 2025 | | 2,306 | |
| 2026 | | 2,355 | |
| 2027 | | 2,407 | |
| Thereafter | | 77,802 | |
| | 89,341 | |
| Discount | | (56,162) | |
| Lease liability | | $ | 33,179 | |
Acquired Finance Lease
During 2021, we acquired a portfolio of real estate assets from Preferred Apartment Communities, Inc. (“PAC”) (see Note 3). In conjunction with the acquisition, we assumed the ground leasehold interest to land underneath a parking garage. Under the ground lease, we have an obligation to acquire fee simple title to the land at our discretion any time, but no later than October 31, 2029. We determined this lease to be a finance lease. As such, we recognized a lease liability (in accounts payable, accrued expenses and other liabilities) and a corresponding right of use asset (in prepaid expenses and other assets) of $5.3
million on our Consolidated Balance Sheet on the date of acquisition equal to the present value of the minimum lease payments required under the ground lease. Through October 31, 2029, the expected date at which we estimate we will satisfy the obligation and acquire fee simple title to the land, we will recognize interest expense equal to the lease liability times our incremental borrowing rate, which reflects the fixed rate at which we could borrow a similar amount for the same term and with similar collateral. We determined this rate to be approximately 2.6%. We also recorded an additional $3.1 million right of use asset (in prepaid expenses and other assets) to reflect favorable terms of the ground lease when compared with market terms. No amortization will be recorded for the right of use assets because they are comprised of land.
3. Real Estate Assets
Acquisitions
During 2022, we acquired SIX50 at Legacy Union, a 367,000 square foot trophy office building in Charlotte’s Uptown CBD submarket, for a net purchase price of $198.0 million. The assets acquired and liabilities assumed were recorded at relative fair value as determined by management, with the assistance of third party specialists, based on information available at the acquisition date and on current assumptions as to future operations.
During 2022, we also acquired land in Charlotte for an aggregate purchase price, including capitalized acquisition costs, of $27.0 million.
During 2021, we acquired a portfolio of real estate assets from PAC. The portfolio consists of the following assets:
| | | | | | | | | | | | | | | | | | | | |
| Asset | | Market | | Submarket/BBD | | Square Footage |
| 150 Fayetteville | | Raleigh | | CBD | | 560,000 |
| CAPTRUST Towers | | Raleigh | | North Hills | | 300,000 |
| Capitol Towers | | Charlotte | | SouthPark | | 479,000 |
| Morrocroft Centre | | Charlotte | | SouthPark | | 291,000 |
| Galleria 75 Redevelopment Site | | Atlanta | | Cumberland/Galleria | | |
Our total purchase price, net of closing credits and cash acquired, was $653.6 million, including $4.5 million of capitalized acquisition costs. The acquisition included the assumption of four secured loans (see Note 6). The assets acquired and liabilities assumed were recorded at relative fair value as determined by management, with the assistance of third party specialists, based on information available at the acquisition date and on current assumptions as to future operations.
The following table sets forth a summary of the relative fair value of the material assets acquired and liabilities assumed relating to this acquisition:
| | | | | | | | |
| | Amount Recorded at Acquisition |
Real estate assets (1) | | $ | 593,039 | |
Acquisition-related intangible assets (in deferred financing and leasing costs) (1) | | $ | 61,126 | |
Right of use asset (in prepaid expenses and other assets) (1) | | $ | 8,440 | |
| Mortgages and notes payable | | $ | (403,000) | |
Debt issuance costs (in mortgages and notes payable) (1) | | $ | 3,473 | |
Acquisition-related intangible liabilities (in accounts payable, accrued expenses and other liabilities) (1) | | $ | (7,174) | |
Lease liability (in accounts payable, accrued expenses and other liabilities) (1) | | $ | (5,310) | |
__________
(1)Included in purchase price.
During 2021, we also acquired various development land parcels in Nashville for an aggregate purchase price, including capitalized acquisition costs, of $74.1 million. The $16.0 million purchase price for one of the acquired parcels is expected to be paid in or prior to second quarter 2023, and $15.5 million of this amount had been paid as of December 31, 2022.
During 2021, we also acquired our joint venture partner’s 75.0% interest in our Highwoods DLF Forum, LLC joint venture (the “Forum”), which owned five buildings in Raleigh encompassing 636,000 rentable square feet, for a purchase price of $131.3 million. We previously accounted for our 25.0% interest in this joint venture using the equity method of accounting. The assets and liabilities of the joint venture are now wholly owned and we have determined the acquisition constitutes an asset
purchase. As such, because the Forum is not a variable interest entity, we allocated our previously held equity interest at historical cost along with the consideration paid and acquisition costs to the assets acquired and liabilities assumed. The assets acquired and liabilities assumed were recorded at relative fair value as determined by management, with the assistance of third party specialists, based on information available at the acquisition date and on current assumptions as to future operations.
During 2020, we acquired two development land parcels totaling less than one acre in Raleigh and Nashville for an aggregate purchase price of $8.5 million, including the issuance of 118,592 Common Units and capitalized acquisition costs.
Dispositions
During 2022, we sold a total of five office buildings and various land parcels in Atlanta, Greensboro, Richmond and Tampa for an aggregate sales price of $133.5 million (before closing credits to buyers of $1.1 million) and recorded aggregate gains on disposition of property of $63.5 million.
During 2021, we sold a total of 13 office buildings and various land parcels in Atlanta, Memphis, Raleigh, Richmond and Tampa for an aggregate sales price of $384.6 million (before closing credits to buyers of $6.9 million) and recorded aggregate gains on disposition of property of $172.8 million.
During 2020, we sold a total of 52 buildings in Greensboro and Memphis and various land parcels for an aggregate sales price of $494.2 million (before closing credits to buyers of $5.7 million) and recorded aggregate gains on disposition of property of $215.5 million. During 2020, we also recognized $0.4 million of gain related to the satisfaction of a performance obligation as part of a 2016 land sale.
Impairments
We recorded the following impairment charges in 2022:
•During the third quarter of 2022, we recorded an impairment charge of $1.5 million to lower the carrying amount of a land parcel to its estimated fair value less costs to sell; and
•During the second quarter of 2022, we recorded an impairment charge of $35.0 million to lower the carrying amount of EQT Plaza (including accrued straight-line rents receivable and deferred leasing costs) to its estimated fair value less costs to sell. EQT Plaza is a 616,000 square foot office building located in the heart of Pittsburgh’s CBD. EQT Corporation’s lease of 317,000 square feet at EQT Plaza is scheduled to expire in September 2024.
During 2020, we recorded an impairment of real estate assets of $1.8 million, which resulted from a change in market-based inputs and our assumptions about the use of the assets.
4. Investments in and Advances to Affiliates
Unconsolidated Affiliates
We have equity interests of up to 50.0% in various joint ventures with unrelated third parties that are accounted for using the equity method of accounting because we have the ability to exercise significant influence over the operating and financial policies of the joint venture investment. The difference between the cost of these investments and the net book value of the underlying net assets was $2.7 million and $0.6 million as of December 31, 2022 and 2021, respectively.
The following table sets forth our ownership in unconsolidated affiliates as of December 31, 2022:
| | | | | | | | | | | | | | |
| Joint Venture | | Location | | Ownership
Interest |
| Granite Park Six JV, LLC | | Dallas | | 50.0% |
| GPI 23 Springs JV, LLC | | Dallas | | 50.0% |
| M+O JV, LLC | | Dallas | | 50.0% |
| Midtown East Tampa, LLC | | Tampa | | 50.0% |
| Brand/HRLP 2827 Peachtree, LLC | | Atlanta | | 50.0% |
| Plaza Colonnade, Tenant-in-Common | | Kansas City | | 50.0% |
| Kessinger/Hunter & Company, LC | | Kansas City | | 26.5% |
- Granite Park Six JV, LLC/ GPI 23 Springs JV, LLC (“Granite Park Six joint venture”/“23Springs joint venture”)
During 2022, we entered the Dallas market through the formation of two joint ventures with Granite Properties (“Granite”) to develop Granite Park Six and 23Springs. In connection with the formation, we agreed to contribute our 50.0% share of the equity required to fund each development project. The Granite Park Six joint venture has an anticipated total investment of $200.0 million and the 23Springs joint venture has an anticipated total investment of $460.0 million. As of December 31, 2022, we have fully funded our share of the equity for the Granite Park Six joint venture and we have funded $41.9 million of our share of the equity for the 23Springs joint venture.
The Granite Park Six joint venture obtained a construction loan for $115.0 million, with an interest rate of SOFR plus 394 basis points and a maturity date of January 2026. In connection with this loan, the Granite Park Six joint venture obtained an interest rate hedge contract that effectively caps the underlying SOFR rate at 3.5% with respect to $95.2 million of any outstanding amounts. The cap expires in July 2024. As of December 31, 2022, $15.3 million was drawn on this loan.
The 23Springs joint venture obtained a construction loan for $265.0 million, with an interest rate of SOFR plus 355 basis points and a maturity date of March 2026. In connection with this loan, the 23Springs joint venture obtained an interest rate hedge contract that effectively caps the underlying SOFR rate at 3.5% with respect to $83.0 million of any outstanding amounts. The cap expires in April 2024. As of December 31, 2022, no amounts were drawn on this loan.
- M+O JV, LLC (“McKinney & Olive joint venture”)
During 2022, we expanded our Dallas market presence by acquiring McKinney & Olive through the formation of another joint venture with Granite in which we own a 50% interest. The McKinney & Olive joint venture has an anticipated total investment of $394.7 million, which includes $1.7 million of near-term building improvements and $2.0 million of transaction costs. As part of the transaction, the McKinney & Olive joint venture assumed a secured loan recorded at fair value of $137.0 million, with a stated interest rate of 4.5% and an effective interest rate of 5.3%, that is scheduled to mature in July 2024. The remainder of the purchase price was funded with $80.0 million of short-term preferred equity contributed by us and $86.4 million of common equity contributed by each of Granite and us. The preferred equity contributed by us will be entitled to receive monthly distributions initially at a minimum rate of SOFR plus 350 basis points.
- Midtown East Tampa, LLC (“Midtown East joint venture”)
During 2022, we formed a joint venture with The Bromley Companies (“Bromley”) in which we own a 50% interest to construct Midtown East, a multi-customer office development project located in the mixed-use Midtown Tampa project in Tampa’s Westshore submarket. Upon completion, the Midtown East joint venture will own 143,000 square feet of an overall
432,000 square foot tower. The rest of Midtown East will serve as the future headquarters of Tampa Electric and Peoples Gas. The total anticipated investment for the Midtown East joint venture’s share of the overall project is $83.0 million. In connection with the formation, we agreed to contribute our 50% share of the equity required to fund the development project, $0.3 million of which was funded as of December 31, 2022. We also committed to provide a $52.3 million interest-only secured construction loan to the Midtown East joint venture that is scheduled to mature on the third anniversary of completion. The loan bears interest at SOFR plus 450 basis points. As of December 31, 2022, no amounts were drawn on this loan.
- Brand/HRLP 2827 Peachtree LLC (“2827 Peachtree joint venture”)
During 2021, we formed a joint venture with Brand Properties, LLC (“Brand”) to construct 2827 Peachtree, a 135,000 square foot, multi-customer office building located in Atlanta’s Buckhead submarket. The 2827 Peachtree joint venture has an anticipated total investment of $79.0 million. Construction of 2827 Peachtree began in the first quarter of 2022 with a scheduled completion date in the third quarter of 2023. At closing, we agreed to contribute cash of $13.3 million, which has been fully funded, in exchange for a 50.0% interest in the 2827 Peachtree joint venture. Brand contributed land valued at $7.7 million and cash of $5.6 million in exchange for the remaining 50.0% interest. We also committed to provide a $49.6 million interest-only secured construction loan to the 2827 Peachtree joint venture that is scheduled to mature in December 2024 with an option to extend for one year. The loan bears interest at SOFR plus 300 basis points. As of December 31, 2022, $4.0 million was drawn on this loan.
- Other Activities
We receive development, management and leasing fees for services provided to certain of our joint ventures. These fees are recognized in income to the extent of our respective joint venture partner’s interest. During the years ended December 31, 2022, 2021 and 2020, we recognized $0.6 million, $1.6 million and $1.0 million, respectively, of development/construction, management and leasing fees from our unconsolidated joint ventures.
Consolidated Affiliates
- HRLP MTW, LLC (“Midtown West joint venture”)
In 2019, we and Bromley formed a joint venture to construct Midtown West, a 152,000 square foot, multi-customer office building located in the mixed-use Midtown Tampa project in Tampa’s Westshore submarket. The Midtown West joint venture has an anticipated total investment of $71.3 million. Construction of Midtown West began in the third quarter of 2019 and the building was placed in service in the second quarter of 2021. At closing, we agreed to contribute cash of $20.0 million, which has been fully funded, in exchange for an 80.0% interest in the Midtown West joint venture, and Bromley contributed land valued at $5.0 million in exchange for the remaining 20.0% interest. We also committed to provide a $46.3 million interest-only secured construction loan to the Midtown West joint venture that is scheduled to mature in June 2023. The loan bears interest at LIBOR plus 250 basis points. As of December 31, 2022, $39.2 million was drawn on this loan.
- Highwoods-Markel Associates, LLC (“Markel”)
We have a 50.0% ownership interest in Markel, a consolidated joint venture. We are the manager and leasing agent for Markel’s properties, which are located in Richmond in exchange for customary management and leasing fees. We consolidate Markel since we are the managing member and control the major operating and financial policies of the entity. As controlling member, we have an obligation to cause this property-owning entity to distribute proceeds of liquidation to the noncontrolling interest member in these partially owned properties only if the net proceeds received by the entity from the sale of any of Markel’s assets warrant a distribution as determined by the agreement governing the joint venture. We estimate the value of such noncontrolling interest distributions would have been $34.4 million had the entity been liquidated as of December 31, 2022. This estimated settlement value is based on the fair value of the underlying properties which is based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates and costs to operate each property. If the entity’s underlying assets are worth less than the underlying liabilities on the date of such liquidation, we would have no obligation to remit any consideration to the noncontrolling interest holder. The assets of Markel can be used only to settle obligations of the joint venture and its creditors have no recourse to our wholly owned assets.
During 2021, Markel sold land in Richmond for a sale price of $3.0 million and recorded gain on disposition of property of $1.3 million.
Joint Venture Rights and Obligations
With respect to some of our joint ventures, we have a right to buy, and our joint venture partner has a right to sell to us, such joint venture partner’s interest under certain circumstances for fair market value (less estimated costs to sell) during various timeframes in the future. For our Granite Park Six joint venture, such rights are exercisable during the two-year period commencing on the 10th anniversary of the completion date. For each of our 23Springs and McKinney & Olive joint ventures, such rights are exercisable during the two-year period commencing on the 12th anniversary of the stabilization date of 23Springs. For our 2827 Peachtree joint venture, such rights are exercisable during the two-year period commencing on the earlier of: (1) the stabilization date; (2) the seventh anniversary of the completion date; and (3) maturity of the loan provided by us to the joint venture. For our Midtown West joint venture, our right to buy our partner’s interest is exercisable during the two-year period commencing on the seventh anniversary of the completion date, and our partner’s right to sell its interest to us is exercisable during the period commencing on the stabilization date and ending on the ninth anniversary of the completion date.
In addition to the foregoing, with respect to our Granite Park Six, 23Springs and Midtown West joint ventures, our joint venture partner has a right to receive additional consideration from us or the joint venture under certain circumstances if and to the extent the internal rate of return on the applicable development project exceeds certain thresholds.
Variable Interest Entities
The acquisition of SIX50 at Legacy Union in Charlotte was completed in 2022 using a special purpose entity owned by a qualified intermediary to facilitate one or more potential Section 1031 reverse exchanges under the Internal Revenue Code. As of December 31, 2022, this variable interest entity had total assets, liabilities and cash flows of $199.9 million, $3.6 million, and $1.6 million, respectively.
We determined that we have a variable interest in both the Granite Park Six and 23Springs joint ventures primarily because the entities were designed to pass along interest rate risk, equity price risk and operation risk to us and Granite as equity holders. The joint ventures were further determined to be variable interest entities as they require additional subordinated financial support in the form of loans because the initial equity investments provided by us and Granite are not sufficient to finance the planned investments and operations. We concluded we do not have the power to direct matters that most significantly impact the activities of either entity and therefore do not qualify as the primary beneficiary. Accordingly, the entities are not consolidated. As of December 31, 2022, our risk of loss with respect to these arrangements was limited to the carrying value of each investment balance. Our investment balances were $40.6 million and $44.9 million as of December 31, 2022 for the Granite Park Six and 23Springs joint ventures, respectively. The assets of the Granite Park Six and 23Springs joint ventures can be used only to settle obligations of the respective joint venture, and their creditors have no recourse to our wholly owned assets.
We determined that we have a variable interest in the McKinney & Olive joint venture primarily because the entity was designed to pass along interest rate risk, equity price risk and operation risk to us and Granite as equity holders. The McKinney & Olive joint venture was further determined to be a variable interest entity as it requires additional subordinated financial support in the form of a loan because the initial equity investments by us and Granite, including the additional preferred equity provided by us, are not sufficient to finance its planned investments and operations. We concluded we do not have the power to direct matters that most significantly impact the activities of the entity and therefore do not qualify as the primary beneficiary. Accordingly, the entity is not consolidated. As of December 31, 2022, our risk of loss with respect to this arrangement was $166.3 million, which represents the carrying value of our investment balance and includes the $80.0 million of preferred equity we funded. The assets of the McKinney & Olive joint venture can be used only to settle obligations of the joint venture, and its creditors have no recourse to our wholly owned assets.
We determined that we have a variable interest in the Midtown East joint venture primarily because the entity was designed to pass along interest rate risk, equity price risk and operation risk to us as both a debt and equity holder and Bromley as an equity holder. The Midtown East joint venture was further determined to be a variable interest entity as it requires additional subordinated financial support in the form of a loan because the initial equity investments provided by us and Bromley are not sufficient to finance its planned investments and operations. We concluded we do not have the power to direct matters that most significantly impact the activities of the entity and therefore do not qualify as the primary beneficiary. Accordingly, the entity is not consolidated. As of December 31, 2022, our risk of loss with respect to this arrangement was limited to the carrying value of the investment balance of $0.3 million as no amounts were outstanding under the loan. The assets of the Midtown East joint venture can be used only to settle obligations of the joint venture, and its creditors have no recourse to our wholly owned assets.
We determined that we have a variable interest in the 2827 Peachtree joint venture primarily because the entity was designed to pass along interest rate risk, equity price risk and operation risk to us as both a debt and equity holder and Brand as an equity holder. The 2827 Peachtree joint venture was further determined to be a variable interest entity as it requires additional subordinated financial support in the form of a loan because the initial equity investments provided by us and Brand are not sufficient to finance its planned investments and operations. We concluded we do not have the power to direct matters that most significantly impact the activities of the entity and therefore do not qualify as the primary beneficiary. Accordingly, the entity is not consolidated. As of December 31, 2022, our risk of loss with respect to this arrangement was $21.8 million, which consists of the $17.8 million carrying value of our investment balance plus the $4.0 million outstanding balance of the loan. The assets of the 2827 Peachtree joint venture can be used only to settle obligations of the joint venture, and its creditors have no recourse to our wholly owned assets.
We determined that we have a variable interest in the Midtown West joint venture primarily because the entity was designed to pass along interest rate risk, equity price risk and operation risk to us as both a debt and an equity holder and Bromley as an equity holder. The Midtown West joint venture was further determined to be a variable interest entity as it requires additional subordinated financial support in the form of a loan because the initial equity investments provided by us and Bromley are not sufficient to finance its planned investments and operations. We, as majority owner and managing member and through our control rights as set forth in the joint venture’s governance documents, were determined to be the primary beneficiary as we have both the power to direct the activities that most significantly affect the entity (primarily lease rates, property operations and capital expenditures) and significant economic exposure through our equity investment and loan commitment. As such, the Midtown West joint venture is consolidated and all intercompany transactions and accounts are eliminated. The following table sets forth the assets and liabilities of the Midtown West joint venture included on our Consolidated Balance Sheets:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Net real estate assets | $ | 59,854 | | | $ | 53,191 | |
| | | |
| | | |
| Cash and cash equivalents | $ | 1,009 | | | $ | 389 | |
| Accounts receivable | $ | 1,490 | | | $ | — | |
| Accrued straight-line rents receivable | $ | 1,921 | | | $ | 121 | |
| Deferred leasing costs, net | $ | 2,677 | | | $ | 1,519 | |
| Prepaid expenses and other assets | $ | 153 | | | $ | 163 | |
| Accounts payable, accrued expenses and other liabilities | $ | 1,212 | | | $ | 646 | |
The assets of the Midtown West joint venture can be used only to settle obligations of the joint venture, and its creditors have no recourse to our wholly owned assets.
5. Intangible Assets and Below Market Lease Liabilities
The following table sets forth total intangible assets and acquisition-related below market lease liabilities, net of accumulated amortization:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Assets: | | | |
Deferred leasing costs (including lease incentives and above market lease and in-place lease acquisition-related intangible assets) | $ | 416,579 | | | $ | 402,013 | |
| Less accumulated amortization | (163,751) | | | (143,111) | |
| $ | 252,828 | | | $ | 258,902 | |
| Liabilities (in accounts payable, accrued expenses and other liabilities): | | | |
| Acquisition-related below market lease liabilities | $ | 55,304 | | | $ | 57,703 | |
| Less accumulated amortization | (29,859) | | | (28,978) | |
| $ | 25,445 | | | $ | 28,725 | |
The following table sets forth amortization of intangible assets and below market lease liabilities:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Amortization of deferred leasing costs and acquisition-related intangible assets (in depreciation and amortization) | $ | 44,900 | | | $ | 38,173 | | | $ | 34,401 | |
| Amortization of lease incentives (in rental and other revenues) | $ | 2,090 | | | $ | 1,885 | | | $ | 1,847 | |
Amortization of acquisition-related intangible assets (in rental and other revenues) | $ | 3,320 | | | $ | 1,932 | | | $ | 1,137 | |
Amortization of acquisition-related intangible assets (in rental property and other expenses) | $ | — | | | $ | — | | | $ | 510 | |
Amortization of acquisition-related below market lease liabilities (in rental and other revenues) | $ | (5,452) | | | $ | (5,720) | | | $ | (6,031) | |
The following table sets forth scheduled future amortization of intangible assets and below market lease liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, | | Amortization
of Deferred Leasing Costs and Acquisition-Related Intangible Assets (in Depreciation and Amortization) | | Amortization
of Lease Incentives (in Rental and Other Revenues) | | Amortization
of Acquisition-Related Intangible Assets (in Rental and Other Revenues) | | | | Amortization
of Acquisition-Related Below Market Lease Liabilities (in Rental and Other Revenues) |
| 2023 | | $ | 42,303 | | | $ | 2,097 | | | $ | 3,302 | | | | | $ | (4,888) | |
| 2024 | | 36,899 | | | 1,677 | | | 3,088 | | | | | (4,219) | |
| 2025 | | 29,903 | | | 1,598 | | | 2,220 | | | | | (2,729) | |
| 2026 | | 25,642 | | | 1,397 | | | 1,860 | | | | | (2,514) | |
| 2027 | | 21,893 | | | 1,210 | | | 1,518 | | | | | (2,112) | |
| Thereafter | | 67,139 | | | 3,484 | | | 5,598 | | | | | (8,983) | |
| | $ | 223,779 | | | $ | 11,463 | | | $ | 17,586 | | | | | $ | (25,445) | |
| Weighted average remaining amortization periods as of December 31, 2022 (in years) | | 7.8 | | 7.7 | | 7.6 | | | | 8.4 |
The following table sets forth the intangible assets acquired and below market lease liabilities assumed as a result of the acquisition of SIX50 at Legacy Union in Charlotte:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Acquisition-Related Intangible Assets (amortized in Rental and Other Revenues) | | Acquisition-Related Intangible Assets (amortized in Depreciation and Amortization) | | Acquisition-Related Below Market Lease Liabilities (amortized in Rental and Other Revenues) |
| Amount recorded at acquisition | | | | $ | 4,722 | | | $ | 12,606 | | | $ | (2,172) | |
| Weighted average remaining amortization periods as of December 31, 2022 (in years) | | | | 8.8 | | 9.6 | | 12.5 |
6. Mortgages and Notes Payable
Our mortgages and notes payable consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Secured indebtedness (1): | | | |
4.27% (3.61% effective rate) mortgage loan due 2028 (2) | $ | 113,105 | | | $ | 115,731 | |
| 4.00% mortgage loan due 2029 | 89,204 | | | 91,318 | |
3.61% (3.19% effective rate) mortgage loan due 2029 (3) | 84,666 | | | 84,973 | |
3.40% (3.50% effective rate) mortgage loan due 2033 (4) | 69,473 | | | 69,422 | |
4.60% (3.73% effective rate) mortgage loan due 2037 (5) | 127,540 | | | 130,498 | |
| 483,988 | | | 491,942 | |
| Unsecured indebtedness: | | | |
3.625% (3.752% effective rate) notes due 2023 (6) | — | | | 249,726 | |
3.875% (4.038% effective rate) notes due 2027 (7) | 298,334 | | | 297,934 | |
4.125% (4.271% effective rate) notes due 2028 (8) | 347,863 | | | 347,449 | |
4.200% (4.234% effective rate) notes due 2029 (9) | 349,386 | | | 349,288 | |
3.050% (3.079% effective rate) notes due 2030 (10) | 399,302 | | | 399,204 | |
2.600% (2.645% effective rate) notes due 2031 (11) | 398,735 | | | 398,579 | |
Variable rate term loan due 2026 (12) | 200,000 | | | 200,000 | |
Variable rate term loan due 2027 (12) | 150,000 | | | — | |
Variable rate term loan due 2024 (12) | 200,000 | | | — | |
Revolving credit facility due 2025 (13) | 386,000 | | | 70,000 | |
| 2,729,620 | | | 2,312,180 | |
| Less-unamortized debt issuance costs | (16,393) | | | (15,207) | |
| Total mortgages and notes payable, net | $ | 3,197,215 | | | $ | 2,788,915 | |
__________
(1)Our secured mortgage loans were collateralized by real estate assets with an undepreciated book value of $747.4 million as of December 31, 2022. We paid down $6.4 million of secured loan balances through principal amortization during 2022.
(2)Net of unamortized fair market value premium of $3.3 million and $3.9 million as of December 31, 2022 and 2021, respectively.
(3)Net of unamortized fair market value premium of $2.0 million and $2.3 million as of December 31, 2022 and 2021, respectively.
(4)Net of unamortized fair market value discount of $0.5 million and $0.6 million as of December 31, 2022 and 2021, respectively.
(5)Net of unamortized fair market value premium of $9.3 million and $10.0 million as of December 31, 2022 and 2021, respectively.
(6)Net of unamortized original issuance discount of $0.3 million as of December 31, 2021. This debt was repaid in 2022.
(7)Net of unamortized original issuance discount of $1.7 million and $2.1 million as of December 31, 2022 and 2021, respectively.
(8)Net of unamortized original issuance discount of $2.1 million and $2.6 million as of December 31, 2022 and 2021, respectively.
(9)Net of unamortized original issuance discount of $0.6 million and $0.7 million as of December 31, 2022 and 2021, respectively.
(10)Net of unamortized original issuance discount of $0.7 million and $0.8 million as of December 31, 2022 and 2021, respectively.
(11)Net of unamortized original issuance discount of $1.3 million and $1.4 million as of December 31, 2022 and 2021, respectively.
(12)The interest rate was 5.34% as of December 31, 2022.
(13)The interest rate was 5.24% as of December 31, 2022.
The following table sets forth scheduled future principal payments, including amortization, due on our mortgages and notes payable as of December 31, 2022:
| | | | | | | | |
| Years Ending December 31, | | Amount |
| 2023 | | $ | 7,069 | |
| 2024 | | 207,365 | |
| 2025 | | 393,176 | |
| 2026 | | 206,911 | |
| 2027 | | 458,929 | |
| Thereafter | | 1,940,158 | |
| Less-unamortized debt issuance costs | | (16,393) | |
| | $ | 3,197,215 | |
Our $750.0 million unsecured revolving credit facility is scheduled to mature in March 2025 and includes an accordion feature that currently allows for an additional $200.0 million of borrowing capacity subject to additional lender commitments. Assuming no defaults have occurred, we have an option to extend the maturity for two additional six-month periods. During the second quarter of 2022, in connection with the modification of our $200.0 million term loan as discussed below, the interest rate on our revolving credit facility was converted from LIBOR plus 90 basis points to SOFR plus a related spread adjustment of 10 basis points and a borrowing spread of 85 basis points, based on current credit ratings. The annual facility fee is 20 basis points. The interest rate and facility fee are based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. There was $386.0 million and $392.0 million outstanding under our new revolving credit facility as of December 31, 2022 and January 27, 2023, respectively. As of both December 31, 2022 and January 27, 2023, we had $0.1 million of outstanding letters of credit, which reduces the availability on our revolving credit facility. As a result, the unused capacity of our revolving credit facility as of December 31, 2022 and January 27, 2023 was $363.9 million and $357.9 million, respectively.
During 2022, we obtained a $200.0 million, two-year unsecured bank term loan that is scheduled to mature in October 2024. Assuming no defaults have occurred, we have an option to extend the maturity for one additional year. The interest rate, based on current credit ratings, is SOFR plus a related spread adjustment of 10 basis points and a borrowing spread of 95 basis points. The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. Additionally, we used the additional $200.0 million of borrowings, together with available cash and borrowings under our revolving credit facility, to prepay without penalty $250.0 million principal amount of 3.625% unsecured notes that were scheduled to mature in January 2023.
During 2022, we modified our $200.0 million unsecured bank term loan to extend the maturity date from November 2022 to May 2026. As part of this modification, we also obtained a $150.0 million delayed-draw term loan, which was drawn in its entirety in the third quarter of 2022, that is scheduled to mature in May 2027. The interest rate, based on current credit ratings, is SOFR plus a related spread adjustment of 10 basis points and a borrowing spread of 95 basis points. The interest rate is based on the higher of the publicly announced ratings from Moody’s Investors Service or Standard & Poor’s Ratings Services. We may be entitled to a temporary reduction in the interest rate of one basis point provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. We incurred $2.7 million of debt issuance costs, which are being amortized along with certain existing unamortized debt issuance costs over the remaining term of our modified term loan.
During 2021, in conjunction with the acquisition of real estate assets from PAC, we assumed four secured mortgage loans recorded at fair value of $403 million in the aggregate, with a weighted average effective interest rate of 3.54% and a weighted average maturity of 10.7 years. We incurred $3.5 million of debt issuance costs related to these assumptions, which will be amortized over the remaining terms of the loans.
During 2021, we also obtained a $200.0 million, six-month unsecured bridge facility. The bridge facility was originally scheduled to mature in January 2022. The bridge facility bore interest at LIBOR plus 85 basis points, had a commitment fee of 20 basis points. We incurred $1.0 million of debt issuance costs related to this bridge facility which were being amortized over the six-month term. This bridge facility was prepaid in full without penalty prior to December 31, 2021. We recorded $0.2 million of loss on debt extinguishment related to this prepayment.
During 2021, we prepaid without penalty the remaining $150.0 million principal amount of 3.20% unsecured notes that was scheduled to mature in June 2021. We recorded $0.1 million of loss on debt extinguishment related to this prepayment.
During 2020, the Operating Partnership issued $400.0 million aggregate principal amount of 2.600% notes due February 2031, less original issuance discount of $1.6 million. These notes were priced to yield 2.645%. Underwriting fees and other expenses were incurred that aggregated $3.4 million; these costs were deferred and will be amortized over the term of the notes. The net proceeds from the issuance were used: (1) to finance the Operating Partnership’s cash tender offer to purchase $150.0 million principal amount of its 3.20% notes due June 15, 2021 at a purchase price of 101.908% of the face amount of the notes, plus accrued and unpaid interest; (2) to prepay without penalty our $100.0 million unsecured bank term loan that was scheduled to mature in January 2022 and which bore interest at LIBOR plus 110 basis points; and (3) for general corporate purposes. We recorded $3.7 million of aggregate losses on debt extinguishment related to the repurchase of the 3.20% notes and the term loan prepayment.
We previously entered into floating-to-fixed interest rate swaps through January 2022 with respect to an aggregate of $50.0 million LIBOR-based borrowings. These swaps effectively fixed the underlying one-month LIBOR rate at a weighted average rate of 1.693%. During 2022, these interest rate swaps expired.
We are currently in compliance with financial covenants with respect to our consolidated debt.
Our revolving credit facility and bank term loans require us to comply with customary operating covenants and various financial requirements. Upon an event of default on the revolving credit facility, the lenders having at least 51.0% of the total commitments under the revolving credit facility can accelerate all borrowings then outstanding, and we could be prohibited from borrowing any further amounts under our revolving credit facility, which would adversely affect our ability to fund our operations. In addition, certain of our unsecured debt agreements contain cross-default provisions giving the unsecured lenders the right to declare a default if we are in default under more than $35.0 million with respect to other loans in some circumstances.
The Operating Partnership has $298.3 million carrying amount of 2027 notes outstanding, $347.9 million carrying amount of 2028 notes outstanding, $349.4 million carrying amount of 2029 notes outstanding, $399.3 million carrying amount of 2030 notes outstanding and $398.7 million carrying amount of 2031 notes outstanding. The indenture that governs these outstanding notes requires us to comply with customary operating covenants and various financial ratios. The trustee or the holders of at least 25.0% in principal amount of any series of notes can accelerate the principal amount of such series upon written notice of a default that remains uncured after 60 days.
We have considered our short-term liquidity needs within one year from February 7, 2023 (the date of issuance of the annual financial statements) and the adequacy of our estimated cash flows from operating activities and other available financing sources to meet these needs. In particular, we have considered our scheduled debt maturities during such one-year period. We have concluded it is probable we will meet these short-term liquidity requirements through a combination of the following:
•available cash and cash equivalents;
•cash flows from operating activities;
•issuance of debt securities by the Operating Partnership;
•issuance of secured debt;
•bank term loans;
•borrowings under our revolving credit facility;
•issuance of equity securities by the Company or the Operating Partnership; and
•the disposition of non-core assets.
Capitalized Interest
Total interest capitalized to wholly-owned and joint venture development and significant building and tenant improvement projects was $4.0 million, $9.6 million and $8.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.
7. Commitments and Contingencies
Lease and Contractual Commitments
We have $300.6 million of lease and contractual commitments as of December 31, 2022. Lease and contractual commitments represent commitments under signed leases and contracts for operating properties (excluding tenant-funded tenant improvements), contracts for development/redevelopment projects and unfunded joint venture equity contributions agreed to at formation, of which $60.6 million was recorded on our Consolidated Balance Sheet as of December 31, 2022.
Contingent Consideration
We had $0.8 million of contingent consideration related to a parcel of acquired development land as of both December 31, 2022 and 2021. The contingent consideration is payable in cash to a third party if and to the extent future development milestones as outlined in the purchase agreements are met.
Environmental Matters
Substantially all of our in-service and development properties have been subjected to Phase I environmental assessments and, in certain instances, Phase II environmental assessments. Such assessments and/or updates have not revealed, nor are we aware of, any environmental liability that we believe would have a material adverse effect in our Consolidated Financial Statements.
Litigation, Claims and Assessments
We are from time to time a party to a variety of legal proceedings, claims and assessments arising in the ordinary course of our business. We regularly assess the liabilities and contingencies in connection with these matters based on the latest information available. For those matters where it is probable that we have incurred or will incur a loss and the loss or range of loss can be reasonably estimated, the estimated loss is accrued and charged to income in our Consolidated Financial Statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, a reasonable estimate of liability, if any, cannot be made. Based on the current expected outcome of such matters, none of these proceedings, claims or assessments is expected to have a material effect on our business, financial condition, results of operations or cash flows.
Joint Venture Buyout Rights and Obligations
With respect to certain joint ventures, we have a right to buy, and our joint venture partner has a right to sell, such joint venture interest to us under certain circumstances for fair market value (less estimated costs to sell) at various dates in the future. See Note 4.
In addition, with respect to certain of our joint ventures, our joint venture partner has a right to receive additional consideration from us or the joint venture under certain circumstances if and to the extent the internal rate of return on the applicable development project exceeds certain thresholds.
8. Noncontrolling Interests
Noncontrolling Interests in Consolidated Affiliates
As of December 31, 2022, our noncontrolling interests in consolidated affiliates relate to our joint venture partners’ 50.0% interest in Markel and 20.0% interest in the Midtown West joint venture. See Note 4. Our joint venture partners are unrelated third parties.
Noncontrolling Interests in the Operating Partnership
Noncontrolling interests in the Operating Partnership relate to the ownership of Redeemable Common Units. Net income attributable to noncontrolling interests in the Operating Partnership is computed by applying the weighted average percentage of Redeemable Common Units during the period, as a percent of the total number of outstanding Common Units, to the Operating Partnership’s net income for the period after deducting distributions on Preferred Units. When a noncontrolling unitholder redeems a Common Unit for a share of Common Stock or cash, the noncontrolling interests in the Operating Partnership are reduced and the Company’s share in the Operating Partnership is increased by the fair value of each security at the time of redemption.
The following table sets forth the Company’s noncontrolling interests in the Operating Partnership:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
| Beginning noncontrolling interests in the Operating Partnership | $ | 111,689 | | | $ | 112,499 | |
| Adjustment of noncontrolling interests in the Operating Partnership to fair value | (39,502) | | | 11,461 | |
| | | |
| Conversions of Common Units to Common Stock | (1,251) | | | (15,076) | |
| Redemptions of Common Units | (3,763) | | | — | |
| Net income attributable to noncontrolling interests in the Operating Partnership | 3,670 | | | 8,321 | |
| Distributions to noncontrolling interests in the Operating Partnership | (4,866) | | | (5,516) | |
| Total noncontrolling interests in the Operating Partnership | $ | 65,977 | | | $ | 111,689 | |
The following table sets forth net income available for common stockholders and transfers from the Company’s noncontrolling interests in the Operating Partnership:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net income available for common stockholders | $ | 156,572 | | | $ | 310,791 | | | $ | 344,914 | |
| Increase in additional paid in capital from conversions of Common Units to Common Stock | 1,251 | | | 15,076 | | | 145 | |
| Redemptions of Common Units | 3,763 | | | — | | | — | |
| Issuances of Common Units | — | | | — | | | (6,163) | |
| Change from net income available for common stockholders and transfers from noncontrolling interests | $ | 161,586 | | | $ | 325,867 | | | $ | 338,896 | |
9. Disclosure About Fair Value of Financial Instruments
The following summarizes the levels of inputs that we use to measure fair value.
Level 1. Quoted prices in active markets for identical assets or liabilities.
Our Level 1 asset is our investment in marketable securities that we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 liability is our non-qualified deferred compensation obligation. The Company’s Level 1 noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company.
Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Our Level 2 assets include the fair value of our mortgages and notes receivable. Our Level 2 liabilities include the fair value of our mortgages and notes payable and interest rate swaps.
The fair value of mortgages and notes receivable and mortgages and notes payable is estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants. The fair value of interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of interest rate swaps are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition, credit valuation adjustments are considered in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented.
Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Our Level 3 assets include any real estate assets recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which are valued using unobservable local and national industry market data such as comparable sales, appraisals, brokers’ opinions of value and/or the terms of definitive sales contracts. Significant increases or decreases in any valuation inputs in isolation would result in a significantly lower or higher fair value measurement.
The following table sets forth our assets and liabilities and the Company’s noncontrolling interests in the Operating Partnership that are measured or disclosed at fair value within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | |
| | | Level 1 | | Level 2 | | |
| Total | | Quoted Prices
in Active
Markets for Identical Assets or Liabilities | | Significant Observable Inputs | | |
| Fair Value as of December 31, 2022: | | | | | | | |
| Assets: | | | | | | | |
Mortgages and notes receivable, at fair value (1) | $ | 1,051 | | | $ | — | | | $ | 1,051 | | | |
| | | | | | | |
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | 2,564 | | | 2,564 | | | — | | | |
| | | | | | | |
| | | | | | | |
| Total Assets | $ | 3,615 | | | $ | 2,564 | | | $ | 1,051 | | | |
| Noncontrolling Interests in the Operating Partnership | $ | 65,977 | | | $ | 65,977 | | | $ | — | | | |
| Liabilities: | | | | | | | |
Mortgages and notes payable, net, at fair value (1) | $ | 2,832,973 | | | $ | — | | | $ | 2,832,973 | | | |
| | | | | | | |
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | 2,564 | | | 2,564 | | | — | | | |
| | | | | | | |
| | | | | | | |
| Total Liabilities | $ | 2,835,537 | | | $ | 2,564 | | | $ | 2,832,973 | | | |
| | | | | | | | | | | | | | | | | | | |
| Fair Value as of December 31, 2021: | | | | | | | |
| Assets: | | | | | | | |
Mortgages and notes receivable, at fair value (1) | $ | 1,227 | | | $ | — | | | $ | 1,227 | | | |
| | | | | | | |
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | 2,866 | | | 2,866 | | | — | | | |
| | | | | | | |
| | | | | | | |
| Total Assets | $ | 4,093 | | | $ | 2,866 | | | $ | 1,227 | | | |
| Noncontrolling Interests in the Operating Partnership | $ | 111,689 | | | $ | 111,689 | | | $ | — | | | |
| Liabilities: | | | | | | | |
Mortgages and notes payable, net, at fair value (1) | $ | 2,907,492 | | | $ | — | | | $ | 2,907,492 | | | |
Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | 60 | | | — | | | 60 | | | |
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | 2,866 | | | 2,866 | | | — | | | |
| | | | | | | |
| | | | | | | |
| Total Liabilities | $ | 2,910,418 | | | $ | 2,866 | | | $ | 2,907,552 | | | |
__________
(1) Amounts are not recorded at fair value on our Consolidated Balance Sheets as of December 31, 2022 and 2021.
At various points throughout 2022, there were Level 3 impaired real estate assets resulting from the shortened hold period assumptions for certain assets in Pittsburgh, which included the following:
•a land parcel measured at a fair value of $1.7 million in the third quarter of 2022. This impairment resulted from the changes in our assumptions about the use of the asset as a result of our plan to exit the Pittsburgh market and was calculated using broker opinions of value, as observable inputs were not available; and
•EQT Plaza, an in-service office building measured at a fair value of $57.4 million in the second quarter of 2022. This impairment resulted from the shortened hold period assumptions for the asset as a result of our plan to exit the Pittsburgh market. The estimated fair value was calculated using broker opinions of value, which incorporate an income approach, as observable inputs were not available. Key assumptions used in the impairment calculation were estimated selling costs of 3.5% (including seller’s share of anticipated transfer taxes), the high end of an estimated discount rate ranging from 13.2% to 16.2% and an estimated terminal capitalization rate of 8.0%.
10. Equity
Common Stock Issuances
During 2020, we entered into separate equity distribution agreements in which the Company may offer and sell up to $300.0 million in aggregate gross sales price of shares of Common Stock. During 2022 and 2021, respectively, the Company issued 130,011 and 456,273 shares of Common Stock under its equity distribution agreements at an average gross sales price of $46.50 and $46.23 per share and received net proceeds, after sales commissions, of $6.0 million and $20.8 million. As of December 31, 2022, the Company had 94.8 million remaining shares of Common Stock authorized to be issued under its charter.
Common Stock Dividends
Dividends of the Company declared per share of Common Stock were $2.00, $1.96 and $1.92 for the years ended December 31, 2022, 2021 and 2020, respectively.
The following table sets forth the Company’s estimated taxability to the common stockholders of dividends per share for federal income tax purposes:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Ordinary dividend | $ | 1.82 | | | $ | 1.87 | | | $ | 1.65 | |
| Capital gains | 0.18 | | | 0.09 | | | 0.25 | |
| Return of capital | — | | | — | | | 0.02 | |
| Total | $ | 2.00 | | | $ | 1.96 | | | $ | 1.92 | |
The Company’s tax returns have not been examined by the Internal Revenue Service (“IRS”) and, therefore, the taxability of dividends is subject to change.
Preferred Stock
The following table sets forth the Company’s outstanding Preferred Stock as of both December 31, 2022 and 2021 :
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Issue Date | | Number of Shares Outstanding | | Carrying Value | | Liquidation Preference Per Share | | Optional Redemption Date | | Annual Dividends Payable Per Share |
| | | | (in thousands) | | | | | | | | |
| | | | | | | | | | | | |
| 8.625% Series A Cumulative Redeemable | | 2/12/1997 | | 29 | | | $ | 28,821 | | | $ | 1,000 | | | 2/12/2027 | | $ | 86.25 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The following table sets forth the Company’s estimated taxability to the preferred stockholders of dividends per share for federal income tax purposes:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| 8.625% Series A Cumulative Redeemable: | | | | | |
| Ordinary dividend | $ | 78.48 | | | $ | 82.38 | | | $ | 74.96 | |
| Capital gains | 7.77 | | | 3.87 | | | 11.29 | |
| Total | $ | 86.25 | | | $ | 86.25 | | | $ | 86.25 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
The Company’s tax returns have not been examined by the IRS and, therefore, the taxability of dividends is subject to change.
Warrants
As of both December 31, 2022 and 2021, we had 15,000 warrants outstanding with an exercise price of $32.50 per share. Upon exercise of a warrant, the Company will contribute the exercise price to the Operating Partnership in exchange for Common Units. Therefore, the Operating Partnership accounts for such warrants as if issued by the Operating Partnership. These warrants have no expiration date.
Common Unit Distributions
Distributions of the Operating Partnership declared per Common Unit were $2.00, $1.96 and $1.92 for the years ended December 31, 2022, 2021 and 2020, respectively.
Redeemable Common Units
Generally, the Operating Partnership is obligated to redeem each Redeemable Common Unit at the request of the holder thereof for cash equal to the value of one share of Common Stock based on the average of the market price for the 10 trading days immediately preceding the notice date of such redemption, provided that the Company, at its option, may elect to acquire any such Redeemable Common Unit presented for redemption for cash or one share of Common Stock. When a holder redeems a Redeemable Common Unit for a share of Common Stock or cash, the Company’s share in the Operating Partnership will be increased. The Common Units owned by the Company are not redeemable.
Preferred Units
The following table sets forth the Operating Partnership’s outstanding Preferred Units as of both December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Issue Date | | Number of
Units
Outstanding | | Carrying
Value | | Liquidation Preference
Per Unit | | Optional Redemption
Date | | Annual
Distributions
Payable
Per Unit |
| | | | (in thousands) | | | | | | | | |
| | | | | | | | | | | | |
| 8.625% Series A Cumulative Redeemable | | 2/12/1997 | | 29 | | | $ | 28,821 | | | $ | 1,000 | | | 2/12/2027 | | $ | 86.25 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
11. Employee Benefit Plans
Officer, Management and Director Compensation Programs
Officers of the Company participate in an annual non-equity incentive program pursuant to which they are eligible to earn cash payments based on a percentage of their annual base salary in effect for December of the applicable year. Under this component of our executive compensation program, officers are eligible to earn additional cash compensation generally to the extent specific performance-based metrics are achieved during the most recently completed year. The position held by each officer has a target annual incentive percentage that ranges from 25% to 140% of base salary. The more senior the position, the greater the portion of compensation that varies with performance. The percentage amount an officer may earn under the annual non-equity incentive plan is the product of the target annual incentive percentage times an “actual performance factor,” which can range from zero to 200%. Amounts under our annual non-equity incentive plan are accrued and expensed in the year earned, but are typically paid early in the following year.
Certain other employees participate in a similar annual non-equity incentive program. Incentive eligibility ranges from 5% to 30% of annual base salary. These amounts are also accrued and expensed in the year earned, but are typically paid early in the following year.
The Company’s officers are eligible to receive a mix of long-term equity incentive awards on or about March 1 of each year. Prior to 2018, the mix generally consisted of stock options, time-based restricted stock and total return-based restricted stock. Since 2018, the mix has consisted of time-based restricted stock and total return-based restricted stock. Time-based restricted stock grants are also made annually to directors and certain other employees. Dividends received on restricted stock are non-forfeitable and are paid at the same rate and on the same date as on shares of Common Stock, except that, with respect to shares of total return-based restricted stock issued to the Company’s chief executive officer, dividends accumulate and are payable only if and to the extent the shares vest. Dividends paid on subsequently forfeited shares are expensed. Additional shares of total return-based restricted stock may be issued at the end of the applicable measurement periods if and to the extent actual performance exceeds certain levels of performance. Such additional shares, if any, would be fully vested when issued. No expense is recorded for additional shares of total return-based restricted stock that may be issued at the end of the applicable measurement period since that possibility is reflected in the grant date fair value. The following table sets forth the number of shares of Common Stock reserved for future issuance under the Company’s long-term equity incentive plans:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Outstanding stock options and warrants | 527,067 | | | 527,067 | |
| Possible future issuance under equity incentive plans | 2,817,293 | | | 2,999,100 | |
| 3,344,360 | | | 3,526,167 | |
Of the possible future issuance under the Company’s long-term equity incentive plans as of December 31, 2022, no more than an additional 0.8 million shares can be in the form of restricted stock.
During the years ended December 31, 2022, 2021 and 2020, we recognized share-based compensation expense of $7.6 million, $8.6 million and $6.2 million, respectively. Because REITs generally do not pay income taxes, we do not realize tax benefits on share-based payments. As of December 31, 2022, there was $3.6 million of total unrecognized share-based compensation costs, which will be recognized over a weighted average remaining contractual term of 1.9 years.
- Stock Options
Stock options issued from 2014 through 2017 vest ratably on an annual basis over four years and expire after 10 years. All stock options have an exercise price equal to the last reported stock price of our Common Stock on the New York Stock Exchange (“NYSE”) on the last trading day prior to grant. The value of all options as of the date of grant is calculated using the Black-Scholes option-pricing model and is amortized over the respective vesting period or the service period, if shorter, for employees who are or will become eligible under the Company’s retirement plan.
The following table sets forth stock option activity:
| | | | | | | | | | | |
| Options Outstanding |
| Number of Options | | Weighted Average Exercise Price |
| Stock options outstanding as of December 31, 2019 | 584,902 | | | $ | 45.75 | |
| | | |
| | | |
| Exercised | (42,163) | | | 41.10 | |
| Forfeited | (5,366) | | | 50.82 | |
| Stock options outstanding as of December 31, 2020 | 537,373 | | | 46.07 | |
| | | |
| | | |
| Exercised | (25,306) | | | 43.76 | |
| | | |
Stock options outstanding as of December 31, 2021 (1) | 512,067 | | | 46.18 | |
| | | |
| | | |
| | | |
| | | |
| | | |
__________
(1)There were no options granted, canceled, exercised or forfeited during the year ended December 31, 2022. The Company had 512,067 options exercisable as of both December 31, 2022 and 2021, with a weighted average exercise price of $46.18 at each date. As of December 31, 2022, these options had a weighted average remaining life of 3.0 years, and all had exercise prices higher than the market price of our common stock. As of December 31, 2021, these options had a weighted average remaining life of 4.0 years, an intrinsic value of $0.6 million, and there were 279,549 shares that had exercise prices higher than the market price of our common stock.
No options were exercised during the year ended December 31, 2022. Cash received or receivable from options exercised was $1.1 million and $1.9 million for the years ended December 31, 2021 and 2020, respectively. The total intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $0.1 million and $0.4 million, respectively. The total intrinsic value of options outstanding as of December 31, 2021 and 2020 was $0.6 million and $0.1 million, respectively. The Company generally does not permit the net cash settlement of exercised stock options, but does permit net share settlement so long as the shares received are held for at least a year. The Company has a practice of issuing new shares to satisfy stock option exercises.
- Time-Based Restricted Stock
Shares of time-based restricted stock vest ratably on an annual basis generally over four years. Beginning in 2019, shares of time-based restricted stock granted to non-employee directors vest on the first anniversary of the grant date. The value of grants of time-based restricted stock is based on the market value of Common Stock as of the date of grant and is amortized to expense over the respective vesting period or the service period, if shorter, for employees who are or will become eligible under the Company’s retirement plan.
The following table sets forth time-based restricted stock activity:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
| Restricted shares outstanding as of December 31, 2019 | 218,151 | | | $ | 45.73 | |
Awarded and issued (1) | 83,116 | | | 44.88 | |
Vested (2) | (88,326) | | | 45.86 | |
| Forfeited | (3,751) | | | 45.78 | |
| Restricted shares outstanding as of December 31, 2020 | 209,190 | | | 45.34 | |
Awarded and issued (1) | 103,120 | | | 39.99 | |
Vested (2) | (89,264) | | | 45.90 | |
| Forfeited | (3,327) | | | 43.13 | |
| Restricted shares outstanding as of December 31, 2021 | 219,719 | | | 42.63 | |
Awarded and issued (1) | 99,975 | | | 43.58 | |
Vested (2) | (101,082) | | | 42.80 | |
| Forfeited | (779) | | | 42.37 | |
| Restricted shares outstanding as of December 31, 2022 | 217,833 | | | $ | 42.63 | |
__________
(1)The weighted average fair value at grant date of time-based restricted stock issued during the years ended December 31, 2022, 2021 and 2020 was $4.4 million, $4.1 million and $3.7 million, respectively.
(2)The vesting date fair value of time-based restricted stock that vested during the years ended December 31, 2022, 2021 and 2020 was $4.4 million, $3.6 million and $3.9 million, respectively. Vested shares include those shares surrendered by employees to satisfy tax withholding obligations in connection with such vesting.
- Total Return-Based Restricted Stock
Shares of total return-based restricted stock vest to the extent the Company’s absolute total returns for certain pre-determined three-year periods exceed predetermined goals. The amount subject to vesting ranges from zero to 150%. For total return-based restricted stock issued prior to 2022, notwithstanding the Company’s absolute total return, if the Company’s total return exceeds 100% of the average peer group total return index, 100% of total return-based restricted stock issued will vest at the end of the applicable period. For total return-based restricted stock issued during 2022, notwithstanding the Company’s absolute total return, if the Company’s total return is in the 50th percentile or greater as compared to all of the companies included in the FTSE NAREIT Equity Office Index, 100% of total return-based restricted stock issued will vest at the end of the applicable period. The weighted average grant date fair value of such shares of total return-based restricted stock issued in 2022, 2021 and 2020 was determined to be $41.94, $36.41 and $38.31, respectively, and is amortized over the respective three-year period or the service period, if shorter, for employees who are or will become eligible under the Company’s retirement plan. The fair values of the total return-based restricted stock granted were determined at the grant dates using a Monte Carlo simulation model and the following assumptions:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Risk free interest rate (1) | 1.6 | % | | 0.3 | % | | 0.9 | % |
Common stock dividend yield (2) | 4.5 | % | | 4.8 | % | | 3.9 | % |
Expected volatility (3) | 25.8 | % | | 26.8 | % | | 20.4 | % |
__________
(1)Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the total return-based restricted stock grants.
(2)The dividend yield is calculated utilizing the then current regular dividend rate for a one-year period and the average per share price of Common Stock during the three-month period preceding the date of grant.
(3)Based on the historical volatility of Common Stock over a period relevant to the related total return-based restricted stock grant.
The following table sets forth total return-based restricted stock activity:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
| Restricted shares outstanding as of December 31, 2019 | 208,848 | | | $ | 42.22 | |
Awarded and issued (1) | 66,188 | | | 38.31 | |
| | | |
Forfeited (3) | (49,852) | | | 51.93 | |
| Restricted shares outstanding as of December 31, 2020 | 225,184 | | | 39.53 | |
Awarded and issued (1) | 81,464 | | | 36.41 | |
Vested (2) | (55,452) | | | 43.01 | |
Forfeited (3) | (21,904) | | | 42.33 | |
| Restricted shares outstanding as of December 31, 2021 | 229,292 | | | 38.00 | |
Awarded and issued (1) | 81,832 | | | 41.94 | |
Vested (2) | (62,985) | | | 45.90 | |
Forfeited (3) | (20,995) | | | 45.90 | |
| Restricted shares outstanding as of December 31, 2022 | 227,144 | | | $ | 38.93 | |
__________
(1)The fair value at grant date of total return-based restricted stock issued during the years ended December 31, 2022, 2021 and 2020 was $3.4 million, $2.9 million and $2.5 million, respectively, at target.
(2)The vesting date fair value of total return-based restricted stock that vested during the years ended December 31, 2022 and 2021 was $2.7 million and $2.2 million, respectively, based on the performance of the specific plans. Vested shares include those shares
surrendered by employees to satisfy tax withholding obligations in connection with such vesting. There were no vested shares of total return-based restricted stock during the year ended December 31, 2020.
(3)The 2022, 2021 and 2020 amounts include 20,995, 18,484 and 46,852 shares, respectively, that were forfeited at the end of the applicable measurement period because the applicable total return did not meet targeted levels.
401(k) Retirement Savings Plan
We have a 401(k) Retirement Savings Plan covering substantially all employees who meet certain age and employment criteria. We contribute amounts for each participant at a rate of 75% of the employee’s contribution (up to 6% of each employee’s bi-weekly salary and cash incentives, subject to statutory limits). During the years ended December 31, 2022, 2021 and 2020, we contributed $1.4 million, $1.3 million and $1.4 million, respectively, to the 401(k) savings plan. The assets of this qualified plan are not included in our Consolidated Financial Statements since the assets are not owned by us.
Retirement Plan
The Company has a retirement plan for employees with at least 30 years of continuous service or are at least 55 years old with at least 10 years of continuous service. Subject to advance written notice and a non-compete agreement, eligible retirees would be entitled to receive a pro rata amount of any annual non-equity incentive compensation earned during the year of retirement and stock options and time-based restricted stock would be non-forfeitable and vest according to the terms of their original grants. Eligible retirees would also be entitled to retain any total return-based restricted stock that subsequently vests after the retirement date according to the terms of their original grants. For employees who meet the age and service eligibility requirements, 100% of their annual grants are expensed at the grant date as if fully vested. For employees who will meet the age and service eligibility requirements within the normal vesting periods, the grants are amortized over the shorter service period.
Deferred Compensation
Prior to 2010, officers could elect to defer all or a portion of their cash compensation, which was then invested in unrelated mutual funds under a non-qualified deferred compensation plan. These investments are recorded at fair value, which aggregated $2.6 million and $2.9 million as of December 31, 2022 and 2021, respectively, and are included in prepaid expenses and other assets, with an offsetting deferred compensation liability recorded in accounts payable, accrued expenses and other liabilities. Deferred amounts ultimately payable to the participants are based on the value of the related mutual fund investments. Accordingly, changes in the value of the unrelated mutual funds are recorded in interest and other income and the corresponding offsetting changes in the deferred compensation liability are recorded in general and administrative expense. As a result, there is no effect on our net income.
The following table sets forth our deferred compensation liability:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Beginning deferred compensation liability | $ | 2,866 | | | $ | 2,573 | | | $ | 2,345 | |
| | | | | |
Mark-to-market adjustment to deferred compensation (in general and administrative expenses) | (302) | | | 293 | | | 228 | |
| | | | | |
| Total deferred compensation liability | $ | 2,564 | | | $ | 2,866 | | | $ | 2,573 | |
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“ESPP”) pursuant to which employees may contribute up to 25% of their cash compensation for the purchase of Common Stock. At the end of each quarter, each participant’s account balance, which includes accumulated dividends, is applied to acquire shares of Common Stock at a cost that is calculated at 85% of the average closing price on the NYSE on the five consecutive days preceding the last day of the quarter. In the years ended December 31, 2022, 2021 and 2020, the Company issued 46,656, 38,460 and 47,208 shares, respectively, of Common Stock under the ESPP. The 15% discount on newly issued shares, which is taxable income to the participants and is recorded by us as additional compensation expense, aggregated $0.2 million, $0.2 million and $0.3 million in the years ended December 31, 2022, 2021 and 2020, respectively. Generally, shares purchased under the ESPP must be held at least one year. The Company satisfies its ESPP obligations by issuing additional shares of Common Stock.
12. Real Estate and Other Assets Held For Sale
The following table sets forth the assets held for sale as of December 31, 2022 and 2021, which are considered non-core:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Assets: | | | |
| | | |
| | | |
| | | |
| Land held for development | $ | — | | | $ | 3,482 | |
| | | |
| Net real estate assets | — | | | 3,482 | |
| | | |
| | | |
| Prepaid expenses and other assets | — | | | 36 | |
| Real estate and other assets, net, held for sale | $ | — | | | $ | 3,518 | |
| | | |
| | | |
| | | |
| | | |
| | | |
13. Earnings Per Share and Per Unit
The following table sets forth the computation of basic and diluted earnings per share of the Company:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Earnings per Common Share - basic: | | | | | |
| Numerator: | | | | | |
| Net income | $ | 163,958 | | | $ | 323,310 | | | $ | 357,914 | |
| Net (income) attributable to noncontrolling interests in the Operating Partnership | (3,670) | | | (8,321) | | | (9,338) | |
| Net (income) attributable to noncontrolling interests in consolidated affiliates | (1,230) | | | (1,712) | | | (1,174) | |
| Dividends on Preferred Stock | (2,486) | | | (2,486) | | | (2,488) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net income available for common stockholders | $ | 156,572 | | | $ | 310,791 | | | $ | 344,914 | |
| Denominator: | | | | | |
Denominator for basic earnings per Common Share – weighted average shares (1) | 105,120 | | | 104,232 | | | 103,876 | |
| | | | | |
| | | | | |
| | | | | |
| Net income available for common stockholders | $ | 1.49 | | | $ | 2.98 | | | $ | 3.32 | |
| Earnings per Common Share - diluted: | | | | | |
| Numerator: | | | | | |
| Net income | $ | 163,958 | | | $ | 323,310 | | | $ | 357,914 | |
| Net (income) attributable to noncontrolling interests in consolidated affiliates | (1,230) | | | (1,712) | | | (1,174) | |
| Dividends on Preferred Stock | (2,486) | | | (2,486) | | | (2,488) | |
| | | | | |
| | | | | |
| | | | | |
| Net income available for common stockholders before net (income) attributable to noncontrolling interests in the Operating Partnership | $ | 160,242 | | | $ | 319,112 | | | $ | 354,252 | |
| Denominator: | | | | | |
Denominator for basic earnings per Common Share – weighted average shares (1) | 105,120 | | | 104,232 | | | 103,876 | |
| Add: | | | | | |
| Stock options using the treasury method | 5 | | | 18 | | | 8 | |
| Noncontrolling interests Common Units | 2,442 | | | 2,811 | | | 2,830 | |
| Denominator for diluted earnings per Common Share – adjusted weighted average shares and assumed conversions | 107,567 | | | 107,061 | | | 106,714 | |
| | | | | |
| | | | | |
| | | | | |
| Net income available for common stockholders | $ | 1.49 | | | $ | 2.98 | | | $ | 3.32 | |
__________
(1)Includes all unvested restricted stock where dividends on such restricted stock are non-forfeitable.
The following table sets forth the computation of basic and diluted earnings per unit of the Operating Partnership:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Earnings per Common Unit - basic: | | | | | |
| Numerator: | | | | | |
| Net income | $ | 163,958 | | | $ | 323,310 | | | $ | 357,914 | |
| Net (income) attributable to noncontrolling interests in consolidated affiliates | (1,230) | | | (1,712) | | | (1,174) | |
| Distributions on Preferred Units | (2,486) | | | (2,486) | | | (2,488) | |
| | | | | |
| | | | | |
| | | | | |
| Net income available for common unitholders | $ | 160,242 | | | $ | 319,112 | | | $ | 354,252 | |
| Denominator: | | | | | |
Denominator for basic earnings per Common Unit – weighted average units (1) | 107,153 | | | 106,634 | | | 106,297 | |
| | | | | |
| | | | | |
| | | | | |
| Net income available for common unitholders | $ | 1.50 | | | $ | 2.99 | | | $ | 3.33 | |
| Earnings per Common Unit - diluted: | | | | | |
| Numerator: | | | | | |
| Net income | $ | 163,958 | | | $ | 323,310 | | | $ | 357,914 | |
| Net (income) attributable to noncontrolling interests in consolidated affiliates | (1,230) | | | (1,712) | | | (1,174) | |
| Distributions on Preferred Units | (2,486) | | | (2,486) | | | (2,488) | |
| | | | | |
| | | | | |
| | | | | |
| Net income available for common unitholders | $ | 160,242 | | | $ | 319,112 | | | $ | 354,252 | |
| Denominator: | | | | | |
Denominator for basic earnings per Common Unit – weighted average units (1) | 107,153 | | | 106,634 | | | 106,297 | |
| Add: | | | | | |
| Stock options using the treasury method | 5 | | | 18 | | | 8 | |
| Denominator for diluted earnings per Common Unit – adjusted weighted average units and assumed conversions | 107,158 | | | 106,652 | | | 106,305 | |
| | | | | |
| | | | | |
| | | | | |
| Net income available for common unitholders | $ | 1.50 | | | $ | 2.99 | | | $ | 3.33 | |
__________
(1)Includes all unvested restricted stock where distributions on such restricted stock are non-forfeitable.
14. Income Taxes
Our Consolidated Financial Statements include the operations of the Company’s taxable REIT subsidiary, which is not entitled to the dividends paid deduction and is subject to federal, state and local income taxes on its taxable income.
The minimum dividend per share of Common Stock required for the Company to maintain its REIT status was $1.60, $1.61 and $1.41 per share in 2022, 2021 and 2020, respectively. Continued qualification as a REIT depends on the Company’s ability to satisfy the dividend distribution tests, stock ownership requirements and various other qualification tests. The tax basis of the Company’s assets (net of accumulated tax depreciation and amortization) and liabilities was approximately $5.6 billion and $3.5 billion, respectively, as of December 31, 2022 and $5.2 billion and $3.2 billion, respectively, as of December 31, 2021. The tax basis of the Operating Partnership’s assets (net of accumulated tax depreciation and amortization) and liabilities was approximately $5.4 billion and $3.5 billion, respectively, as of December 31, 2022 and $5.0 billion and $3.2 billion, respectively, as of December 31, 2021.
During the years ended December 31, 2022, 2021 and 2020, the Company qualified as a REIT and incurred no federal income tax expense; accordingly, the only federal income taxes included in the accompanying Consolidated Financial Statements relate to activities of the Company’s taxable REIT subsidiary.
The Company’s net deferred tax liability was $0.1 million as of December 31, 2021. There was no net deferred tax liability as of December 31, 2022. The net deferred tax liability is comprised primarily of tax versus book differences related to property (depreciation, amortization and basis differences).
For the years ended December 31, 2022 and 2021, there were no unrecognized tax benefits. The Company is subject to federal, state and local income tax examinations by taxing authorities for 2019 through 2022. The Company does not expect that the total amount of unrecognized benefits will materially change within the next year.
15. Segment Information
Our principal business is the operation, acquisition and development of rental office properties. We evaluate our business by geographic location. The operating results by geographic grouping are regularly reviewed by our chief operating decision maker for assessing performance and other purposes. There are no material inter-segment transactions.
Our accounting policies of the segments are the same as those used in our Consolidated Financial Statements. All operations are within the United States.
The following tables summarize the rental and other revenues, net operating income (the primary industry property-level performance metric used by our chief operating decision maker and which is defined as rental and other revenues less rental property and other expenses) and total assets for our office properties. Our segment information as of and for the years ended December 31, 2021 and 2020, respectively, has been retrospectively revised from previously reported amounts to reflect a change in our reportable segments as a result of our plan to exit the Pittsburgh market.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Rental and Other Revenues: | | | | | |
| | | | | |
| Atlanta | $ | 143,904 | | | $ | 143,612 | | | $ | 146,704 | |
| Charlotte | 73,721 | | | 49,347 | | | 35,733 | |
| Nashville | 174,341 | | | 149,674 | | | 138,089 | |
| Orlando | 54,802 | | | 51,281 | | | 49,459 | |
| | | | | |
| Raleigh | 182,990 | | | 162,115 | | | 128,189 | |
| Richmond | 43,084 | | | 45,941 | | | 48,079 | |
| Tampa | 94,726 | | | 97,954 | | | 99,520 | |
| Total Office Segment | 767,568 | | | 699,924 | | | 645,773 | |
| | | | | |
| | | | | |
| | | | | |
| Other | 61,361 | | | 68,083 | | | 91,127 | |
| Total Rental and Other Revenues | $ | 828,929 | | | $ | 768,007 | | | $ | 736,900 | |
| | | | | | | | | | | | | | | | | |
| |
| | | | | |
| Net Operating Income: | | | | | |
| | | | | |
| Atlanta | $ | 92,297 | | | $ | 94,122 | | | $ | 95,448 | |
| Charlotte | 55,689 | | | 38,464 | | | 28,431 | |
| Nashville | 129,217 | | | 110,039 | | | 99,901 | |
| Orlando | 32,331 | | | 31,301 | | | 29,546 | |
| | | | | |
| Raleigh | 134,904 | | | 121,005 | | | 95,926 | |
| Richmond | 28,879 | | | 31,726 | | | 33,667 | |
| Tampa | 59,691 | | | 64,396 | | | 67,059 | |
| Total Office Segment | 533,008 | | | 491,053 | | | 449,978 | |
| | | | | |
| | | | | |
| | | | | |
| Other | 36,115 | | | 40,518 | | | 55,097 | |
| Total Net Operating Income | 569,123 | | | 531,571 | | | 505,075 | |
| Reconciliation to net income: | | | | | |
| Depreciation and amortization | (287,610) | | | (259,255) | | | (241,585) | |
| Impairments of real estate assets | (36,515) | | | — | | | (1,778) | |
| General and administrative expenses | (42,266) | | | (40,553) | | | (41,031) | |
| Interest expense | (105,385) | | | (85,853) | | | (80,962) | |
| Other income/(loss) | 1,530 | | | 1,394 | | | (1,707) | |
| Gains on disposition of property | 63,546 | | | 174,059 | | | 215,897 | |
| Equity in earnings of unconsolidated affiliates | 1,535 | | | 1,947 | | | 4,005 | |
| Net income | $ | 163,958 | | | $ | 323,310 | | | $ | 357,914 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| | | |
| Total Assets: | | | |
| | | |
| Atlanta | $ | 928,406 | | | $ | 947,877 | |
| Charlotte | 984,075 | | | 771,121 | |
| Nashville | 1,290,819 | | | 1,294,178 | |
| Orlando | 287,950 | | | 285,781 | |
| | | |
| Raleigh | 1,288,878 | | | 1,269,200 | |
| Richmond | 196,435 | | | 202,488 | |
| Tampa | 493,966 | | | 514,303 | |
| Total Office Segment | 5,470,529 | | | 5,284,948 | |
| Other | 592,847 | | | 410,190 | |
| Total Assets | $ | 6,063,376 | | | $ | 5,695,138 | |
16. Subsequent Events
We have a 50.0% ownership interest in Markel, a joint venture that was consolidated as of December 31, 2022 (see Note 4). Effective January 1, 2023, the agreement governing the joint venture was modified to require the consent of both partners for major operating and financial policies of the entity. As a result, even though we remain the managing member, because we are no longer in sole control of the major operating and financial policies of the entity, we will no longer consolidate Markel and will account for the joint venture using the equity method of accounting effective January 1, 2023.
On February 1, 2023, the Company declared a cash dividend of $0.50 per share of Common Stock, which is payable on March 14, 2023 to stockholders of record as of February 21, 2023.
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTE TO SCHEDULE III
(in thousands)
The following table sets forth the activity of real estate assets and accumulated depreciation:
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
| Real estate assets: | | | | | |
| Beginning balance | $ | 6,486,136 | | | $ | 5,594,833 | | | $ | 5,776,804 | |
| | | | | |
| Acquisitions, development and improvements | 378,587 | | | 1,248,256 | | | 259,470 | |
| Cost of real estate sold and retired | (175,031) | | | (356,953) | | | (441,441) | |
| Ending balance (a) | $ | 6,689,692 | | | $ | 6,486,136 | | | $ | 5,594,833 | |
| Accumulated depreciation: | | | | | |
| Beginning balance | $ | 1,457,511 | | | $ | 1,421,956 | | | $ | 1,405,341 | |
| Depreciation expense | 240,273 | | | 218,628 | | | 204,585 | |
| Real estate sold and retired | (88,282) | | | (183,073) | | | (187,970) | |
| Ending balance (b) | $ | 1,609,502 | | | $ | 1,457,511 | | | $ | 1,421,956 | |
(a)Reconciliation of total real estate assets to balance sheet caption:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| | | | | |
| Total per Schedule III | $ | 6,689,692 | | | $ | 6,486,136 | | | $ | 5,594,833 | |
| Development in-process exclusive of land included in Schedule III | 46,735 | | | 6,890 | | | 259,681 | |
| Real estate assets, net, held for sale | — | | | (3,482) | | | (14,850) | |
| Total real estate assets | $ | 6,736,427 | | | $ | 6,489,544 | | | $ | 5,839,664 | |
(b)Reconciliation of total accumulated depreciation to balance sheet caption:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| | | | | |
| Total per Schedule III | $ | 1,609,502 | | | $ | 1,457,511 | | | $ | 1,421,956 | |
| Real estate assets, net, held for sale | — | | | — | | | (3,577) | |
| Total accumulated depreciation | $ | 1,609,502 | | | $ | 1,457,511 | | | $ | 1,418,379 | |
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Costs | | Costs Capitalized
Subsequent to
Acquisition | | Gross Value at Close of Period | | | | | | Life on
Which
Depreciation
is
Calculated |
| Description | | Property
Type | | 2022
Encumbrance | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Total
Assets (1) | | Accumulated
Depreciation | | Date of
Construction | |
| Atlanta, GA | | | | | | | | | | | | | | | | | | | | | | | | |
| 1700 Century Circle | | Office | | | | $ | — | | | $ | 2,482 | | | $ | 2 | | | $ | 1,340 | | | $ | 2 | | | $ | 3,822 | | | $ | 3,824 | | | $ | 2,225 | | | 1983 | | 5-40 yrs. |
| 1800 Century Boulevard | | Office | | | | 1,444 | | | 29,081 | | | — | | | 6,381 | | | 1,444 | | | 35,462 | | | 36,906 | | | 21,368 | | | 1975 | | 5-40 yrs. |
| 1825 Century Boulevard | | Office | | | | 864 | | | — | | | 303 | | | 15,209 | | | 1,167 | | | 15,209 | | | 16,376 | | | 7,687 | | | 2002 | | 5-40 yrs. |
| 1875 Century Boulevard | | Office | | | | — | | | 8,924 | | | — | | | 8,854 | | | — | | | 17,778 | | | 17,778 | | | 10,331 | | | 1976 | | 5-40 yrs. |
| 1900 Century Boulevard | | Office | | | | — | | | 4,744 | | | — | | | 340 | | | — | | | 5,084 | | | 5,084 | | | 5,084 | | | 1971 | | 5-40 yrs. |
| 2200 Century Parkway | | Office | | | | — | | | 14,432 | | | — | | | 9,374 | | | — | | | 23,806 | | | 23,806 | | | 13,405 | | | 1971 | | 5-40 yrs. |
| 2400 Century Parkway | | Office | | | | — | | | — | | | 406 | | | 14,802 | | | 406 | | | 14,802 | | | 15,208 | | | 8,843 | | | 1998 | | 5-40 yrs. |
| 2500 Century Parkway | | Office | | | | — | | | — | | | 328 | | | 12,892 | | | 328 | | | 12,892 | | | 13,220 | | | 6,204 | | | 2005 | | 5-40 yrs. |
| 2500/2635 Parking Garage | | Office | | | | — | | | — | | | — | | | 6,447 | | | — | | | 6,447 | | | 6,447 | | | 2,764 | | | 2005 | | 5-40 yrs. |
| 2600 Century Parkway | | Office | | | | — | | | 10,679 | | | — | | | 5,327 | | | — | | | 16,006 | | | 16,006 | | | 8,888 | | | 1973 | | 5-40 yrs. |
| 2635 Century Parkway | | Office | | | | — | | | 21,643 | | | — | | | 21,120 | | | — | | | 42,763 | | | 42,763 | | | 22,453 | | | 1980 | | 5-40 yrs. |
| 2800 Century Parkway | | Office | | | | — | | | 20,449 | | | — | | | 11,856 | | | — | | | 32,305 | | | 32,305 | | | 20,210 | | | 1983 | | 5-40 yrs. |
| Century Plaza I | | Office | | | | 1,290 | | | 8,567 | | | — | | | 4,772 | | | 1,290 | | | 13,339 | | | 14,629 | | | 7,493 | | | 1981 | | 5-40 yrs. |
| Century Plaza II | | Office | | | | 1,380 | | | 7,733 | | | — | | | 4,666 | | | 1,380 | | | 12,399 | | | 13,779 | | | 6,079 | | | 1984 | | 5-40 yrs. |
| Riverwood 100 | | Office | | | | 5,785 | | | 64,913 | | | (29) | | | 28,871 | | | 5,756 | | | 93,784 | | | 99,540 | | | 30,150 | | | 1989 | | 5-40 yrs. |
| Tradeport - Land | | Office | | | | 5,243 | | | — | | | (4,733) | | | — | | | 510 | | | — | | | 510 | | | — | | | N/A | | N/A |
| Two Alliance Center | | Office | | | | 9,579 | | | 125,549 | | | — | | | 22 | | | 9,579 | | | 125,571 | | | 135,150 | | | 36,973 | | | 2009 | | 5-40 yrs. |
| One Alliance Center | | Office | | | | 14,775 | | | 123,071 | | | — | | | 23,163 | | | 14,775 | | | 146,234 | | | 161,009 | | | 40,075 | | | 2001 | | 5-40 yrs. |
| 10 Glenlake North | | Office | | | | 5,349 | | | 26,334 | | | — | | | 8,110 | | | 5,349 | | | 34,444 | | | 39,793 | | | 9,844 | | | 2000 | | 5-40 yrs. |
| 10 Glenlake South | | Office | | | | 5,103 | | | 22,811 | | | — | | | 9,336 | | | 5,103 | | | 32,147 | | | 37,250 | | | 9,177 | | | 1999 | | 5-40 yrs. |
| Riverwood 200 | | Office | | | | 4,777 | | | 89,708 | | | 450 | | | 2,691 | | | 5,227 | | | 92,399 | | | 97,626 | | | 17,208 | | | 2017 | | 5-40 yrs. |
| Riverwood 300 - Land | | Office | | | | 400 | | | — | | | — | | | 710 | | | 400 | | | 710 | | | 1,110 | | | 105 | | | N/A | | 5-40 yrs. |
| Monarch Tower | | Office | | | | 22,717 | | | 143,068 | | | — | | | 22,143 | | | 22,717 | | | 165,211 | | | 187,928 | | | 36,534 | | | 1997 | | 5-40 yrs. |
| Monarch Plaza | | Office | | | | 27,678 | | | 88,962 | | | — | | | 14,823 | | | 27,678 | | | 103,785 | | | 131,463 | | | 22,507 | | | 1983 | | 5-40 yrs. |
| Galleria 75 - Land | | Office | | | | 19,740 | | | — | | | (906) | | | 220 | | | 18,834 | | | 220 | | | 19,054 | | | 15 | | | N/A | | N/A |
| Charlotte, NC | | | | | | | | | | | | | | | | | | | | | | | | |
| Bank of America Tower | | Office | | | | 29,273 | | | 354,749 | | | — | | | 22,746 | | | 29,273 | | | 377,495 | | | 406,768 | | | 35,392 | | | 2019 | | 5-40 yrs. |
| Morrocroft | | Office | | 69,473 | | | 19,286 | | | 177,199 | | | — | | | 5,569 | | | 19,286 | | | 182,768 | | | 202,054 | | | 9,120 | | | 1992 | | 5-40 yrs. |
| Capitol Towers | | Office | | 127,540 | | | 9,202 | | | 102,179 | | | — | | | 107 | | | 9,202 | | | 102,286 | | | 111,488 | | | 4,511 | | | 2015 | | 5-40 yrs. |
1426 S. Tryon - Land | | Office | | | | — | | | — | | | 26,702 | | — | | 26,702 | | | — | | | 26,702 | | | — | | | N/A | | 5-40 yrs. |
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Costs | | Costs Capitalized
Subsequent to
Acquisition | | Gross Value at Close of Period | | | | | | Life on
Which
Depreciation
is
Calculated |
| Description | | Property
Type | | 2022
Encumbrance | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Total
Assets (1) | | Accumulated
Depreciation | | Date of
Construction | |
| SIX50 at Legacy Union | | Office | | | | — | | | — | | | 16,504 | | 166,305 | | 16,504 | | | 166,305 | | | 182,809 | | | 2,104 | | | 2020 | | 5-40 yrs. |
| Nashville, TN | | | | | | | | | | | | | | | | | | | | | | | | |
| 3322 West End | | Office | | | | 3,025 | | | 27,490 | | | — | | | 12,663 | | | 3,025 | | | 40,153 | | | 43,178 | | | 21,598 | | | 1986 | | 5-40 yrs. |
| 3401 West End | | Office | | | | 5,862 | | | 22,917 | | | — | | | 7,484 | | | 5,862 | | | 30,401 | | | 36,263 | | | 17,944 | | | 1982 | | 5-40 yrs. |
| 5310 Maryland Way | | Office | | | | 1,863 | | | 7,201 | | | — | | | 3,818 | | | 1,863 | | | 11,019 | | | 12,882 | | | 7,444 | | | 1994 | | 5-40 yrs. |
| Cool Springs I & II Deck | | Office | | | | — | | | — | | | — | | | 3,994 | | | — | | | 3,994 | | | 3,994 | | | 1,516 | | | 2007 | | 5-40 yrs. |
| Cool Springs III & IV Deck | | Office | | | | — | | | — | | | — | | | 4,467 | | | — | | | 4,467 | | | 4,467 | | | 1,762 | | | 2007 | | 5-40 yrs. |
| Cool Springs I | | Office | | | | 1,583 | | | — | | | 15 | | | 18,764 | | | 1,598 | | | 18,764 | | | 20,362 | | | 9,375 | | | 1999 | | 5-40 yrs. |
| Cool Springs II | | Office | | | | 1,824 | | | — | | | 346 | | | 24,083 | | | 2,170 | | | 24,083 | | | 26,253 | | | 10,764 | | | 1999 | | 5-40 yrs. |
| Cool Springs III | | Office | | | | 1,631 | | | — | | | 804 | | | 22,191 | | | 2,435 | | | 22,191 | | | 24,626 | | | 7,172 | | | 2006 | | 5-40 yrs. |
| Cool Springs IV | | Office | | | | 1,715 | | | — | | | — | | | 20,532 | | | 1,715 | | | 20,532 | | | 22,247 | | | 7,492 | | | 2008 | | 5-40 yrs. |
| Cool Springs V | | Office | | | | 3,688 | | | — | | | 295 | | | 53,285 | | | 3,983 | | | 53,285 | | | 57,268 | | | 26,690 | | | 2007 | | 5-40 yrs. |
| Harpeth Two | | Office | | | | 1,419 | | | 5,677 | | | — | | | 9,034 | | | 1,419 | | | 14,711 | | | 16,130 | | | 4,975 | | | 1984 | | 5-40 yrs. |
| Harpeth Three | | Office | | | | 1,660 | | | 6,649 | | | — | | | 7,876 | | | 1,660 | | | 14,525 | | | 16,185 | | | 5,788 | | | 1987 | | 5-40 yrs. |
| Harpeth Four | | Office | | | | 1,713 | | | 6,842 | | | — | | | 8,710 | | | 1,713 | | | 15,552 | | | 17,265 | | | 6,076 | | | 1989 | | 5-40 yrs. |
| Harpeth Five | | Office | | | | 662 | | | — | | | 197 | | | 8,579 | | | 859 | | | 8,579 | | | 9,438 | | | 3,459 | | | 1998 | | 5-40 yrs. |
| Hickory Trace | | Office | | | | 1,164 | | | — | | | 164 | | | 6,413 | | | 1,328 | | | 6,413 | | | 7,741 | | | 3,101 | | | 2001 | | 5-40 yrs. |
| Highwoods Plaza I | | Office | | | | 1,552 | | | — | | | 307 | | | 9,469 | | | 1,859 | | | 9,469 | | | 11,328 | | | 5,434 | | | 1996 | | 5-40 yrs. |
| Highwoods Plaza II | | Office | | | | 1,448 | | | — | | | 307 | | | 7,659 | | | 1,755 | | | 7,659 | | | 9,414 | | | 4,102 | | | 1997 | | 5-40 yrs. |
| Seven Springs I | | Office | | | | 2,076 | | | — | | | 592 | | | 14,008 | | | 2,668 | | | 14,008 | | | 16,676 | | | 6,847 | | | 2002 | | 5-40 yrs. |
| SouthPointe | | Office | | | | 1,655 | | | — | | | 310 | | | 9,403 | | | 1,965 | | | 9,403 | | | 11,368 | | | 5,047 | | | 1998 | | 5-40 yrs. |
| Ramparts | | Office | | | | 2,394 | | | 12,806 | | | — | | | 11,543 | | | 2,394 | | | 24,349 | | | 26,743 | | | 10,899 | | | 1986 | | 5-40 yrs. |
| Westwood South | | Office | | | | 2,106 | | | — | | | 382 | | | 11,222 | | | 2,488 | | | 11,222 | | | 13,710 | | | 6,487 | | | 1999 | | 5-40 yrs. |
| 100 Winners Circle | | Office | | | | 1,497 | | | 7,258 | | | — | | | 5,753 | | | 1,497 | | | 13,011 | | | 14,508 | | | 5,668 | | | 1987 | | 5-40 yrs. |
| The Pinnacle at Symphony Place | | Office | | 89,204 | | | — | | | 141,469 | | | — | | | 5,923 | | | — | | | 147,392 | | | 147,392 | | | 45,993 | | | 2010 | | 5-40 yrs. |
| Seven Springs East | | Office | | | | 2,525 | | | 37,587 | | | — | | | 507 | | | 2,525 | | | 38,094 | | | 40,619 | | | 10,926 | | | 2013 | | 5-40 yrs. |
| The Shops at Seven Springs | | Office | | | | 803 | | | 8,223 | | | — | | | 613 | | | 803 | | | 8,836 | | | 9,639 | | | 3,257 | | | 2013 | | 5-40 yrs. |
| Seven Springs West | | Office | | | | 2,439 | | | 51,306 | | | — | | | 1,187 | | | 2,439 | | | 52,493 | | | 54,932 | | | 10,007 | | | 2016 | | 5-40 yrs. |
| Seven Springs II | | Office | | | | 2,356 | | | 30,048 | | | — | | | 3,103 | | | 2,356 | | | 33,151 | | | 35,507 | | | 6,418 | | | 2017 | | 5-40 yrs. |
| Bridgestone Tower | | Office | | | | 19,223 | | | 169,582 | | | — | | | 380 | | | 19,223 | | | 169,962 | | | 189,185 | | | 26,196 | | | 2017 | | 5-40 yrs. |
| Virginia Springs II | | Office | | | | 4,821 | | | 26,448 | | | — | | | 3,973 | | | 4,821 | | | 30,421 | | | 35,242 | | | 1,914 | | | 2020 | | 5-40 yrs. |
| MARS Campus | | Office | | | | 7,010 | | | 87,474 | | | — | | | 136 | | | 7,010 | | | 87,610 | | | 94,620 | | | 12,072 | | | 2019 | | 5-40 yrs. |
| Virginia Springs I | | Office | | | | 4,534 | | | 25,632 | | | — | | | 308 | | | 4,534 | | | 25,940 | | | 30,474 | | | 3,745 | | | 2018 | | 5-40 yrs. |
| 1100 Broadway - Land | | Office | | | | 29,845 | | | — | | | (200) | | | — | | | 29,645 | | | — | | | 29,645 | | | — | | | N/A | | N/A |
| Asurion | | Office | | | | 33,219 | | | 230,569 | | | — | | | 2,253 | | | 33,219 | | | 232,822 | | | 266,041 | | | 9,601 | | | 2021 | | 5-40 yrs. |
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Costs | | Costs Capitalized
Subsequent to
Acquisition | | Gross Value at Close of Period | | | | | | Life on
Which
Depreciation
is
Calculated |
| Description | | Property
Type | | 2022
Encumbrance | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Total
Assets (1) | | Accumulated
Depreciation | | Date of
Construction | |
| Ovation - Land | | Office | | | | 89,231 | | | — | | | 162 | | | — | | | 89,393 | | | — | | | 89,393 | | | — | | | N/A | | N/A |
| Broadway Stem - Land | | Office | | | | 6,218 | | | — | | | — | | | 526 | | | 6,218 | | | 526 | | | 6,744 | | | 18 | | | N/A | | 5-40 yrs. |
| YMCA Site - land | | Office | | | | 16,121 | | | — | | | 48 | | | — | | | 16,169 | | | — | | | 16,169 | | | — | | | N/A | | N/A |
| Orlando, FL | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital Plaza Three - Land | | Office | | | | 2,994 | | | — | | | 18 | | | — | | | 3,012 | | | — | | | 3,012 | | | — | | | N/A | | N/A |
| 1800 Eller Drive | | Office | | | | — | | | 9,851 | | | — | | | 2,565 | | | — | | | 12,416 | | | 12,416 | | | 8,430 | | | 1983 | | 5-40 yrs. |
| Seaside Plaza | | Office | | | | 3,893 | | | 29,541 | | | — | | | 14,028 | | | 3,893 | | | 43,569 | | | 47,462 | | | 12,534 | | | 1982 | | 5-40 yrs. |
| Capital Plaza Two | | Office | | | | 4,346 | | | 43,394 | | | — | | | 11,555 | | | 4,346 | | | 54,949 | | | 59,295 | | | 13,688 | | | 1999 | | 5-40 yrs. |
| Capital Plaza One | | Office | | | | 3,482 | | | 27,321 | | | — | | | 9,724 | | | 3,482 | | | 37,045 | | | 40,527 | | | 10,249 | | | 1975 | | 5-40 yrs. |
| Landmark Center Two | | Office | | | | 4,743 | | | 22,031 | | | — | | | 10,368 | | | 4,743 | | | 32,399 | | | 37,142 | | | 10,100 | | | 1985 | | 5-40 yrs. |
| Landmark Center One | | Office | | | | 6,207 | | | 22,655 | | | — | | | 11,953 | | | 6,207 | | | 34,608 | | | 40,815 | | | 10,272 | | | 1983 | | 5-40 yrs. |
| Bank of America Plaza | | Office | | | | 3,490 | | | 56,079 | | | — | | | 9,601 | | | 3,490 | | | 65,680 | | | 69,170 | | | 14,390 | | | 2000 | | 5-40 yrs. |
| Eola Centre | | Office | | | | 5,785 | | | 11,160 | | | — | | | 15,510 | | | 5,785 | | | 26,670 | | | 32,455 | | | 5,463 | | | 1969 | | 5-40 yrs. |
| Pittsburgh, PA | | | | | | | | | | | | | | | | | | | | | | | | |
| One PPG Place | | Office | | | | 9,819 | | | 107,643 | | | — | | 51,618 | | 9,819 | | | 159,261 | | | 169,080 | | | 55,295 | | | 1983-1985 | | 5-40 yrs. |
| Two PPG Place | | Office | | | | 2,302 | | | 10,978 | | | — | | 12,456 | | 2,302 | | | 23,434 | | | 25,736 | | | 7,358 | | | 1983-1985 | | 5-40 yrs. |
| Three PPG Place | | Office | | | | 501 | | | 2,923 | | | — | | 4,536 | | 501 | | | 7,459 | | | 7,960 | | | 3,254 | | | 1983-1985 | | 5-40 yrs. |
| Four PPG Place | | Office | | | | 620 | | | 3,239 | | | — | | 3,383 | | 620 | | | 6,622 | | | 7,242 | | | 2,438 | | | 1983-1985 | | 5-40 yrs. |
| Five PPG Place | | Office | | | | 803 | | | 4,924 | | | — | | 2,678 | | 803 | | | 7,602 | | | 8,405 | | | 2,490 | | | 1983-1985 | | 5-40 yrs. |
| Six PPG Place | | Office | | | | 3,353 | | | 25,602 | | | — | | 15,552 | | 3,353 | | | 41,154 | | | 44,507 | | | 13,894 | | | 1983-1985 | | 5-40 yrs. |
| EQT Plaza | | Office | | | | 16,457 | | | 83,812 | | | (6,000) | | (7,121) | | 10,457 | | | 76,691 | | | 87,148 | | | 33,713 | | | 1987 | | 5-40 yrs. |
| East Liberty - Land | | Office | | | | 2,478 | | | — | | | (813) | | — | | 1,665 | | | — | | | 1,665 | | | — | | | N/A | | N/A |
| Raleigh, NC | | | | | | | | | | | | | | | | | | | | | | | | |
| 3600 Glenwood Avenue | | Office | | | | — | | | 10,994 | | | — | | | 6,160 | | | — | | | 17,154 | | | 17,154 | | | 10,184 | | | 1986 | | 5-40 yrs. |
| 3737 Glenwood Avenue | | Office | | | | — | | | — | | | 318 | | | 17,738 | | | 318 | | | 17,738 | | | 18,056 | | | 9,607 | | | 1999 | | 5-40 yrs. |
| 4800 Falls of Neuse | | Office | | | | 2,678 | | | 17,630 | | | — | | | 7,685 | | | 2,678 | | | 25,315 | | | 27,993 | | | 16,048 | | | 1985 | | 5-40 yrs. |
| 5000 Falls of Neuse | | Office | | | | 1,010 | | | 4,612 | | | (49) | | | 3,792 | | | 961 | | | 8,404 | | | 9,365 | | | 4,717 | | | 1980 | | 5-40 yrs. |
| 801 Raleigh Corporate Center | | Office | | | | 828 | | | — | | | 272 | | | 11,975 | | | 1,100 | | | 11,975 | | | 13,075 | | | 5,710 | | | 2002 | | 5-40 yrs. |
| 2500 Blue Ridge Road | | Office | | | | 722 | | | 4,606 | | | — | | | 1,417 | | | 722 | | | 6,023 | | | 6,745 | | | 4,187 | | | 1982 | | 5-40 yrs. |
| 2418 Blue Ridge Road | | Office | | | | 462 | | | 1,410 | | | — | | | 2,895 | | | 462 | | | 4,305 | | | 4,767 | | | 2,113 | | | 1988 | | 5-40 yrs. |
| 2000 CentreGreen | | Office | | | | 1,529 | | | — | | | (391) | | | 14,318 | | | 1,138 | | | 14,318 | | | 15,456 | | | 5,835 | | | 2000 | | 5-40 yrs. |
| 4000 CentreGreen | | Office | | | | 1,653 | | | — | | | (389) | | | 12,171 | | | 1,264 | | | 12,171 | | | 13,435 | | | 5,310 | | | 2001 | | 5-40 yrs. |
| 5000 CentreGreen | | Office | | | | 1,291 | | | 34,572 | | | — | | | 2,481 | | | 1,291 | | | 37,053 | | | 38,344 | | | 8,208 | | | 2017 | | 5-40 yrs. |
| 3000 CentreGreen | | Office | | | | 1,779 | | | — | | | (397) | | | 14,784 | | | 1,382 | | | 14,784 | | | 16,166 | | | 5,746 | | | 2002 | | 5-40 yrs. |
| 1000 CentreGreen | | Office | | | | 1,280 | | | — | | | 55 | | | 13,992 | | | 1,335 | | | 13,992 | | | 15,327 | | | 4,990 | | | 2008 | | 5-40 yrs. |
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Costs | | Costs Capitalized
Subsequent to
Acquisition | | Gross Value at Close of Period | | | | | | Life on
Which
Depreciation
is
Calculated |
| Description | | Property
Type | | 2022
Encumbrance | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Total
Assets (1) | | Accumulated
Depreciation | | Date of
Construction | |
| GlenLake - Land | | Office | | | | 13,003 | | | — | | | (12,382) | | | 114 | | | 621 | | | 114 | | | 735 | | | 62 | | | N/A | | 5-40 yrs. |
| GlenLake One | | Office | | | | 924 | | | — | | | 1,324 | | | 24,166 | | | 2,248 | | | 24,166 | | | 26,414 | | | 11,700 | | | 2002 | | 5-40 yrs. |
| GlenLake Four | | Office | | | | 1,659 | | | — | | | 493 | | | 20,705 | | | 2,152 | | | 20,705 | | | 22,857 | | | 8,420 | | | 2006 | | 5-40 yrs. |
| GlenLake Six | | Office | | | | 941 | | | — | | | (365) | | | 20,453 | | | 576 | | | 20,453 | | | 21,029 | | | 7,374 | | | 2008 | | 5-40 yrs. |
| 701 Corporate Center | | Office | | | | 1,304 | | | — | | | 540 | | | 18,946 | | | 1,844 | | | 18,946 | | | 20,790 | | | 9,389 | | | 1996 | | 5-40 yrs. |
| 7001 Weston Parkway | | Office | | | | 531 | | | — | | | (267) | | | 8,062 | | | 264 | | | 8,062 | | | 8,326 | | | 4,788 | | | 1998 | | 5-40 yrs. |
| Inveresk Parcel 2 - Land | | Office | | | | 657 | | | — | | | 38 | | | 103 | | | 695 | | | 103 | | | 798 | | | 19 | | | N/A | | 5-40 yrs. |
| 4201 Lake Boone Trail | | Office | | | | 1,450 | | | 6,311 | | | — | | | 1,015 | | | 1,450 | | | 7,326 | | | 8,776 | | | 2,460 | | | 1998 | | 5-40 yrs. |
| 4620 Creekstone Drive | | Office | | | | 149 | | | — | | | 107 | | | 5,927 | | | 256 | | | 5,927 | | | 6,183 | | | 1,851 | | | 2001 | | 5-40 yrs. |
| 4825 Creekstone Drive | | Office | | | | 398 | | | — | | | 293 | | | 10,819 | | | 691 | | | 10,819 | | | 11,510 | | | 5,906 | | | 1999 | | 5-40 yrs. |
| 751 Corporate Center | | Office | | | | 2,665 | | | 16,939 | | | — | | | (50) | | | 2,665 | | | 16,889 | | | 19,554 | | | 3,400 | | | 2018 | | 5-40 yrs. |
| PNC Plaza | | Office | | | | 1,206 | | | — | | | — | | | 71,091 | | | 1,206 | | | 71,091 | | | 72,297 | | | 29,568 | | | 2008 | | 5-40 yrs. |
| 4301 Lake Boone Trail | | Office | | | | 878 | | | 3,730 | | | — | | | 2,432 | | | 878 | | | 6,162 | | | 7,040 | | | 4,355 | | | 1990 | | 5-40 yrs. |
| 4207 Lake Boone Trail | | Office | | | | 362 | | | 1,818 | | | — | | | 1,409 | | | 362 | | | 3,227 | | | 3,589 | | | 2,440 | | | 1993 | | 5-40 yrs. |
| 2301 Rexwoods Drive | | Office | | | | 919 | | | 2,816 | | | — | | | 1,486 | | | 919 | | | 4,302 | | | 5,221 | | | 2,997 | | | 1992 | | 5-40 yrs. |
| 4325 Lake Boone Trail | | Office | | | | 586 | | | — | | | — | | | 4,696 | | | 586 | | | 4,696 | | | 5,282 | | | 3,220 | | | 1995 | | 5-40 yrs. |
| 2300 Rexwoods Drive | | Office | | | | 1,301 | | | — | | | 184 | | | 10,418 | | | 1,485 | | | 10,418 | | | 11,903 | | | 4,084 | | | 1998 | | 5-40 yrs. |
| 4709 Creekstone Drive | | Office | | | | 469 | | | 4,038 | | | 23 | | | 5,722 | | | 492 | | | 9,760 | | | 10,252 | | | 3,752 | | | 1987 | | 5-40 yrs. |
| 4700 Six Forks Road | | Office | | | | 666 | | | 2,665 | | | — | | | 1,741 | | | 666 | | | 4,406 | | | 5,072 | | | 2,558 | | | 1982 | | 5-40 yrs. |
| 4700 Homewood Court | | Office | | | | 1,086 | | | 4,533 | | | — | | | 1,655 | | | 1,086 | | | 6,188 | | | 7,274 | | | 3,915 | | | 1983 | | 5-40 yrs. |
| 4800 Six Forks Road | | Office | | | | 862 | | | 4,411 | | | — | | | 2,725 | | | 862 | | | 7,136 | | | 7,998 | | | 4,534 | | | 1987 | | 5-40 yrs. |
| 4601 Creekstone Drive | | Office | | | | 255 | | | — | | | 217 | | | 5,686 | | | 472 | | | 5,686 | | | 6,158 | | | 3,257 | | | 1997 | | 5-40 yrs. |
| Weston - Land | | Office | | | | 22,771 | | | — | | | (19,528) | | | — | | | 3,243 | | | — | | | 3,243 | | | — | | | N/A | | N/A |
| 4625 Creekstone Drive | | Office | | | | 458 | | | — | | | 268 | | | 6,647 | | | 726 | | | 6,647 | | | 7,373 | | | 3,831 | | | 1995 | | 5-40 yrs. |
| 11000 Weston Parkway | | Office | | | | 2,651 | | | 18,850 | | | — | | | 16,628 | | | 2,651 | | | 35,478 | | | 38,129 | | | 9,954 | | | 1998 | | 5-40 yrs. |
| GlenLake Five | | Office | | | | 2,263 | | | 30,264 | | | — | | | 1,424 | | | 2,263 | | | 31,688 | | | 33,951 | | | 9,365 | | | 2014 | | 5-40 yrs. |
| 11800 Weston Parkway | | Office | | | | 826 | | | 13,188 | | | — | | | 45 | | | 826 | | | 13,233 | | | 14,059 | | | 3,855 | | | 2014 | | 5-40 yrs. |
| CentreGreen Café | | Office | | | | 41 | | | 3,509 | | | — | | | 15 | | | 41 | | | 3,524 | | | 3,565 | | | 709 | | | 2014 | | 5-40 yrs. |
| CentreGreen Fitness Center | | Office | | | | 27 | | | 2,322 | | | — | | | (1) | | | 27 | | | 2,321 | | | 2,348 | | | 469 | | | 2014 | | 5-40 yrs. |
| One City Plaza | | Office | | | | 11,288 | | | 68,375 | | | — | | | 26,944 | | | 11,288 | | | 95,319 | | | 106,607 | | | 28,566 | | | 1986 | | 5-40 yrs. |
| Edison - Land | | Office | | | | 5,984 | | | — | | | 1,834 | | | — | | | 7,818 | | | — | | | 7,818 | | | — | | | N/A | | N/A |
| Charter Square | | Office | | | | 7,267 | | | 65,881 | | | — | | | 4,140 | | | 7,267 | | | 70,021 | | | 77,288 | | | 14,023 | | | 2015 | | 5-40 yrs. |
| MetLife Global Technology Campus | | Office | | | | 21,580 | | | 149,889 | | | — | | | 264 | | | 21,580 | | | 150,153 | | | 171,733 | | | 28,859 | | | 2015 | | 5-40 yrs. |
| GlenLake Seven | | Office | | | | 1,662 | | | 37,332 | | | — | | | — | | | 1,662 | | | 37,332 | | | 38,994 | | | 2,886 | | | 2020 | | 5-40 yrs. |
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Costs | | Costs Capitalized
Subsequent to
Acquisition | | Gross Value at Close of Period | | | | | | Life on
Which
Depreciation
is
Calculated |
| Description | | Property
Type | | 2022
Encumbrance | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Total
Assets (1) | | Accumulated
Depreciation | | Date of
Construction | |
| Hargett - Land | | Office | | | | 9,248 | | | — | | | (212) | | | — | | | 9,036 | | | — | | | 9,036 | | | — | | | N/A | | N/A |
| Forum 1 | | Office | | | | 1,278 | | | 27,809 | | | — | | | 1,535 | | | 1,278 | | | 29,344 | | | 30,622 | | | 2,335 | | | 1985 | | 5-40 yrs. |
| Forum 2 | | Office | | | | 1,327 | | | 18,088 | | | — | | | 326 | | | 1,327 | | | 18,414 | | | 19,741 | | | 1,636 | | | 1988 | | 5-40 yrs. |
| Forum 3 | | Office | | | | 994 | | | 23,931 | | | — | | | 1,394 | | | 994 | | | 25,325 | | | 26,319 | | | 2,199 | | | 1995 | | 5-40 yrs. |
| Forum 4 | | Office | | | | 2,118 | | | 43,889 | | | — | | | 271 | | | 2,118 | | | 44,160 | | | 46,278 | | | 3,273 | | | 2000 | | 5-40 yrs. |
| Forum 5 | | Office | | | | 1,552 | | | 26,263 | | | — | | | 1,146 | | | 1,552 | | | 27,409 | | | 28,961 | | | 2,489 | | | 2007 | | 5-40 yrs. |
| Captrust Tower | | Office | | 84,666 | | | 9,670 | | | 124,530 | | | — | | | 2,432 | | | 9,670 | | | 126,962 | | | 136,632 | | | 5,466 | | | 2010 | | 5-40 yrs. |
| 150 Fayetteville | | Office | | 113,105 | | | 7,677 | | | 130,049 | | | — | | | 12,153 | | | 7,677 | | | 142,202 | | | 149,879 | | | 7,118 | | | 1991 | | 5-40 yrs. |
| Other Property | | Other | | | | 27,260 | | | 20,868 | | | (21,846) | | | 3,166 | | | 5,414 | | | 24,034 | | | 29,448 | | | 10,379 | | | N/A | | 5-40 yrs. |
| Richmond, VA | | | | | | | | | | | | | | | | | | | | | | | | |
| 4900 Cox Road | | Office | | | | 1,324 | | | 5,311 | | | 15 | | | 3,537 | | | 1,339 | | | 8,848 | | | 10,187 | | | 5,764 | | | 1991 | | 5-40 yrs. |
| Colonnade Building | | Office | | | | 1,364 | | | 6,105 | | | — | | | 3,139 | | | 1,364 | | | 9,244 | | | 10,608 | | | 4,237 | | | 2003 | | 5-40 yrs. |
| Markel 4521 | | Office | | | | 1,581 | | | 13,299 | | | 168 | | | (378) | | | 1,749 | | | 12,921 | | | 14,670 | | | 7,029 | | | 1999 | | 5-40 yrs. |
| Highwoods Commons | | Office | | | | 521 | | | — | | | 458 | | | 4,930 | | | 979 | | | 4,930 | | | 5,909 | | | 2,323 | | | 1999 | | 5-40 yrs. |
| Highwoods One | | Office | | | | 1,688 | | | — | | | 22 | | | 14,053 | | | 1,710 | | | 14,053 | | | 15,763 | | | 7,981 | | | 1996 | | 5-40 yrs. |
| Highwoods Two | | Office | | | | 786 | | | — | | | 226 | | | 10,840 | | | 1,012 | | | 10,840 | | | 11,852 | | | 5,106 | | | 1997 | | 5-40 yrs. |
| Highwoods Five | | Office | | | | 783 | | | — | | | 11 | | | 8,210 | | | 794 | | | 8,210 | | | 9,004 | | | 4,520 | | | 1998 | | 5-40 yrs. |
| Highwoods Plaza | | Office | | | | 909 | | | — | | | 187 | | | 6,123 | | | 1,096 | | | 6,123 | | | 7,219 | | | 3,046 | | | 2000 | | 5-40 yrs. |
| Innslake Center | | Office | | | | 845 | | | — | | | 125 | | | 7,725 | | | 970 | | | 7,725 | | | 8,695 | | | 3,927 | | | 2001 | | 5-40 yrs. |
| 4101 Cox Road | | Office | | | | 1,205 | | | 4,825 | | | — | | | 2,711 | | | 1,205 | | | 7,536 | | | 8,741 | | | 4,045 | | | 1990 | | 5-40 yrs. |
| Markel 4501 | | Office | | | | 1,300 | | | 13,259 | | | 213 | | | (3,435) | | | 1,513 | | | 9,824 | | | 11,337 | | | 4,497 | | | 1998 | | 5-40 yrs. |
| 4600 Cox Road | | Office | | | | 1,700 | | | 17,081 | | | 169 | | | (3,208) | | | 1,869 | | | 13,873 | | | 15,742 | | | 6,444 | | | 1989 | | 5-40 yrs. |
| North Park | | Office | | | | 2,163 | | | 8,659 | | | 6 | | | 3,315 | | | 2,169 | | | 11,974 | | | 14,143 | | | 6,966 | | | 1989 | | 5-40 yrs. |
| North Shore Commons I | | Office | | | | 951 | | | — | | | 137 | | | 14,727 | | | 1,088 | | | 14,727 | | | 15,815 | | | 6,758 | | | 2002 | | 5-40 yrs. |
| North Shore Commons II | | Office | | | | 2,067 | | | — | | | (89) | | | 11,742 | | | 1,978 | | | 11,742 | | | 13,720 | | | 4,526 | | | 2007 | | 5-40 yrs. |
| North End - Land | | Office | | | | 1,497 | | | — | | | 55 | | | 10 | | | 1,552 | | | 10 | | | 1,562 | | | 2 | | | N/A | | 5-40 yrs. |
| One Shockoe Plaza | | Office | | | | — | | | — | | | 356 | | | 22,319 | | | 356 | | | 22,319 | | | 22,675 | | | 12,122 | | | 1996 | | 5-40 yrs. |
| Pavilion - Land | | Office | | | | 181 | | | 46 | | | (181) | | | (46) | | | — | | | — | | | — | | | — | | | N/A | | N/A |
| Lake Brook Commons | | Office | | | | 1,600 | | | 8,864 | | | (179) | | | 334 | | | 1,421 | | | 9,198 | | | 10,619 | | | 3,848 | | | 1996 | | 5-40 yrs. |
| Sadler & Cox - Land | | Office | | | | 1,535 | | | — | | | 343 | | | — | | | 1,878 | | | — | | | 1,878 | | | — | | | N/A | | N/A |
| Highwoods Three | | Office | | | | 1,918 | | | — | | | 358 | | | 12,542 | | | 2,276 | | | 12,542 | | | 14,818 | | | 5,254 | | | 2005 | | 5-40 yrs. |
| Stony Point I | | Office | | | | 1,384 | | | 11,630 | | | (267) | | | 4,808 | | | 1,117 | | | 16,438 | | | 17,555 | | | 9,230 | | | 1990 | | 5-40 yrs. |
| Stony Point II | | Office | | | | 1,240 | | | — | | | 103 | | | 13,952 | | | 1,343 | | | 13,952 | | | 15,295 | | | 7,215 | | | 1999 | | 5-40 yrs. |
| Stony Point III | | Office | | | | 995 | | | — | | | — | | | 11,375 | | | 995 | | | 11,375 | | | 12,370 | | | 6,139 | | | 2002 | | 5-40 yrs. |
| Stony Point IV | | Office | | | | 955 | | | — | | | — | | | 12,794 | | | 955 | | | 12,794 | | | 13,749 | | | 5,367 | | | 2006 | | 5-40 yrs. |
HIGHWOODS PROPERTIES, INC.
HIGHWOODS REALTY LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
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| | | | | | Initial Costs | | Costs Capitalized
Subsequent to
Acquisition | | Gross Value at Close of Period | | | | | | Life on
Which
Depreciation
is
Calculated |
| Description | | Property
Type | | 2022
Encumbrance | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Land | | Bldg &
Improv | | Total
Assets (1) | | Accumulated
Depreciation | | Date of
Construction | |
| 4480 Cox Road | | Office | | | | 1,301 | | | 6,036 | | | 15 | | | 3,448 | | | 1,316 | | | 9,484 | | | 10,800 | | | 4,281 | | | 1996 | | 5-40 yrs. |
| Innsbrook Centre | | Office | | | | 914 | | | 8,249 | | | — | | | 999 | | | 914 | | | 9,248 | | | 10,162 | | | 4,470 | | | 1987 | | 5-40 yrs. |
| Tampa, FL | | | | | | | | | | | | | | | | | | | | | | | | |
| Meridian Three | | Office | | | | 2,673 | | | 16,470 | | | — | | | 6,677 | | | 2,673 | | | 23,147 | | | 25,820 | | | 8,912 | | | 1989 | | 5-40 yrs. |
| Bayshore Place | | Office | | | | 2,276 | | | 11,817 | | | — | | | 3,915 | | | 2,276 | | | 15,732 | | | 18,008 | | | 8,265 | | | 1990 | | 5-40 yrs. |
| Highwoods Bay Center I | | Office | | | | 3,565 | | | — | | | (64) | | | 38,113 | | | 3,501 | | | 38,113 | | | 41,614 | | | 15,460 | | | 2007 | | 5-40 yrs. |
| Horizon | | Office | | | | — | | | 6,257 | | | — | | | 4,410 | | | — | | | 10,667 | | | 10,667 | | | 5,453 | | | 1980 | | 5-40 yrs. |
| LakePointe One | | Office | | | | 2,106 | | | 89 | | | — | | | 41,363 | | | 2,106 | | | 41,452 | | | 43,558 | | | 24,877 | | | 1986 | | 5-40 yrs. |
| LakePointe Two | | Office | | | | 2,000 | | | 15,848 | | | 672 | | | 13,141 | | | 2,672 | | | 28,989 | | | 31,661 | | | 16,304 | | | 1999 | | 5-40 yrs. |
| Lakeside | | Office | | | | — | | | 7,369 | | | — | | | 7,160 | | | — | | | 14,529 | | | 14,529 | | | 8,478 | | | 1978 | | 5-40 yrs. |
| Lakeside/Parkside Garage | | Office | | | | — | | | — | | | — | | | 5,731 | | | — | | | 5,731 | | | 5,731 | | | 2,950 | | | 2004 | | 5-40 yrs. |
| One Harbour Place | | Office | | | | 2,016 | | | 25,252 | | | — | | | 17,019 | | | 2,016 | | | 42,271 | | | 44,287 | | | 21,481 | | | 1985 | | 5-40 yrs. |
| Parkside | | Office | | | | — | | | 9,407 | | | — | | | 3,513 | | | — | | | 12,920 | | | 12,920 | | | 7,041 | | | 1979 | | 5-40 yrs. |
| Pavilion | | Office | | | | — | | | 16,394 | | | — | | | 6,535 | | | — | | | 22,929 | | | 22,929 | | | 14,016 | | | 1982 | | 5-40 yrs. |
| Pavilion Parking Garage | | Office | | | | — | | | — | | | — | | | 5,911 | | | — | | | 5,911 | | | 5,911 | | | 3,353 | | | 1999 | | 5-40 yrs. |
| Spectrum | | Office | | | | 1,454 | | | 14,502 | | | — | | | 5,946 | | | 1,454 | | | 20,448 | | | 21,902 | | | 11,480 | | | 1984 | | 5-40 yrs. |
| Tower Place | | Office | | | | 3,218 | | | 19,898 | | | — | | | 9,888 | | | 3,218 | | | 29,786 | | | 33,004 | | | 15,879 | | | 1988 | | 5-40 yrs. |
| Westshore Square | | Office | | | | 1,126 | | | 5,186 | | | — | | | 1,765 | | | 1,126 | | | 6,951 | | | 8,077 | | | 4,103 | | | 1976 | | 5-40 yrs. |
| Independence Park - Land | | Office | | | | 4,943 | | | — | | | 2,669 | | | 1,693 | | | 7,612 | | | 1,693 | | | 9,305 | | | 247 | | | N/A | | 5-40 yrs. |
| Independence One | | Office | | | | 2,531 | | | 4,526 | | | — | | | 2,407 | | | 2,531 | | | 6,933 | | | 9,464 | | | 2,349 | | | 1983 | | 5-40 yrs. |
| Meridian One | | Office | | | | 1,849 | | | 22,363 | | | — | | | 4,120 | | | 1,849 | | | 26,483 | | | 28,332 | | | 7,641 | | | 1984 | | 5-40 yrs. |
| Meridian Two | | Office | | | | 1,302 | | | 19,588 | | | — | | | 5,843 | | | 1,302 | | | 25,431 | | | 26,733 | | | 7,947 | | | 1986 | | 5-40 yrs. |
| Avion | | Office | | | | — | | | — | | | 6,310 | | | 43,562 | | | 6,310 | | | 43,562 | | | 49,872 | | | 6,874 | | | 2016 | | 5-40 yrs. |
| Truist Place | | Office | | | | 1,980 | | | 102,138 | | | — | | | 28,429 | | | 1,980 | | | 130,567 | | | 132,547 | | | 29,249 | | | 1992 | | 5-40 yrs. |
| Truist Place - Land | | Office | | | | 2,225 | | | — | | | — | | | — | | | 2,225 | | | — | | | 2,225 | | | — | | | N/A | | N/A |
| Midtown West | | Office | | | | 16,543 | | | 34,818 | | | — | | | 7,312 | | | 16,543 | | | 42,130 | | | 58,673 | | | 1,826 | | | 2021 | | 5-40 yrs. |
| | | | | | $ | 781,999 | | | $ | 4,175,016 | | | $ | (2,061) | | | $ | 1,734,738 | | | $ | 779,938 | | | $ | 5,909,754 | | | $ | 6,689,692 | | | $ | 1,609,502 | | | | | |
__________
(1)The cost basis for income tax purposes of aggregate land and buildings and tenant improvements as of December 31, 2022 is $6.4 billion.